Consumer ETFs: Staples vs. Discretionary

July 12th at 4:15pm by Tom Lydon

While the consumer staples and consumer staple sectors both rely on spending habits, consumer related exchange traded funds act differently in a shifting economy.

Typically, investors can look at the two consumer sectors as discretionary “wants” and staple “needs.”

Discretionary goods include nonessential items that consumers would splurge on during the good times but are willing to cut back during tougher times. These types of items and services include retailers, media, durables, apparel and automobiles.

So far this year, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) has gained 24.3%, outperforming the S&P 500. [Consumer Discretionary ETFs Still Crushing the S&P 500]

Top holdings include Walt Disney 6.4%, Home Depot 6.4%, Comcast 6.2%, Amazon 5.9% and McDonald’s 5.9%. Top sectors include Media 30.0%, Specialty Retail 19.1%, Hotel Restaurants & Leisure 14.5%, Internet & Catalog Retail 9.9% and Multiline Retail 6.8%.

“Investors should take note that the Consumer Discretionary Select Sector SPDR is a cyclical play tied to consumer spending,” according to Morningstar analyst Robert Goldsborough. “At the same time, cyclical firms usually do rally before the economy fully emerges from a slump.”

Consumer confidence is rising, along with the improving U.S. economy and a rising employment rate.

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