Appearances can be deceiving. This is true in many facets of life, and the investing world is no exception. Many investors take a passive approach to investing and often review their portfolios only once every quarter or even only at year-end. Knowing this, some money managers dress up portfolios as the end of a quarter or year approaches in an attempt to instill or improve confidence in the portfolio, even when that confidence is not necessarily deserved. Dressing up a portfolio can take place by buying high-flyers and selling underperformers, or by selling the stocks of controversial companies and buying the equity of companies adored by the public. As money managers do this, the high-flyers and adored companies often stay elevated while the underperformers and controversial companies often see continued downward pressure.
If you are an investor who attempts to take advantage of institutional window dressing, the information that follows might be of interest. As most investors have come to realize over the past few years, confidence is the lifeblood of the financial system. Confidence is important not only for the survival of banking institutions, but also for the survival of money managers. As we enter the final four weeks of the year, let’s review how various sectors and sector subgroups of the S&P 500 have performed thus far and consider which areas portfolio managers might target for window dressing opportunities.
The data in the following two paragraphs come from Standard & Poor’s S&P 500 GICS Sector Scorecard, which includes data through November 30, 2011. S&P’s sector scorecard shows ten sectors and numerous subgroups within those sectors, along with a myriad of other data. What follows is a look at the Consumer Discretionary Sector.
This sector’s year-to-date return was 3.3% on November 30, 2011. It has 32 subgroups, 20 of which are up on the year, and 12 of which are down. The five worst performers are Household Appliances (-38.9%), Automobile Manufacturers (-36.9%), Specialty Stores (-22.3%), Hotels, Resorts & Cruise Lines (-20.3%), and Computer & Electronics Retail (-18.6%). These five subgroups together comprise 9.34% of the sector’s total weighting.
The five best performers are Specialized Consumer Services (32.1%), Apparel, Accessories & Luxury Goods (28.1%), Restaurants (23.8%), Homefurnishing Retail (23.1%), and Apparel Retail (18.6%). These five subgroups comprise 24.13% of the sector’s total weighting; Restaurants alone comprise 14.41%.
Below you will find a few examples I came across of some of the best performing and worst performing equities year-to-date within this sector. I excluded companies delinquent in their regulatory filings or deficient in listing requirements as well as companies with market capitalizations below $700 million. Please do your own due diligence on these companies before buying or selling the stocks. All year-to-date data is through December 2.
Market cap - greater than $2.30 billion
- Ulta Salon, Cosmetics & Fragrance (ULTA) is up 118.2% YTD and has a market cap. of $4.6 billion.
- Weight Watchers International (WTW) is up 64.82% YTD and has a market cap. of $4.5 billion.
- Netflix (NFLX) is down 62.23% YTD and has a market cap. of $3.5 billion.
- Cablevision Systems (CVC) is down 55.26% and has a market cap. of $4.2 billion.
Market cap - $700 million to $2.30 billion
- Select Comfort Corp. (SCSS) is up 116.1% YTD and has a market cap. of $1.1 billion.
- Domino’s Pizza (DPZ) is up 110.4% YTD and has a market cap. of $2.0 billion.
- CTC Media (CTCM) is down 57.49% YTD and has a market cap. of $1.6 billion.
- WMS Industries (WMS) is down 56.01% YTD and has a market cap. of $1.1 billion.
Other notable companies in the Consumer Discretionary sector to watch for year-end window dressing include:
- Melco Crown Entertainment (MPEL), up 57.7% YTD.
- Chipotle Mexican Grill (CMG), up 55.4% YTD.
- Under Armour (UA), up 49.23% YTD.
- Dollar Tree (DLTR), up 45.77% YTD.
- Panera Bread (PNRA), up 40.4% YTD.
- Sony (SNE), down 50.24% YTD.
- Whirlpool (WHR), down 44.33% YTD.
- General Motors (GM), down 42.27% YTD.
- Royal Caribbean Cruises (RCL), down 41.57% YTD.