ETF Trends
ETF Trends

Exchange traded funds that invest in the consumer discretionary sector posted gains Wednesday despite the carnage in Staples (NasdaqGS: SPLS) shares and disappointing earnings from Target (NYSE: TGT).

Consumer Discretionary Select Sector SPDR Fund (NYSEArca: XLY) gained 1.2% on Wednesday while component Staples plunged 15%. [Consumer Discretionary ETFs Fight Weakness in Target, Staples]

The consumer ETF “failed to threaten its 50-day exponential moving average with the recent rout,” said Tarquin Coe, technical analyst at Investors Intelligence.

“That behavior, from a sector that has provided leadership since equities bottomed in early 2009, adds confidence to the assumption that the recent sell-off is nothing more than a healthy correction,” he wrote in a subscriber note Wednesday.

“Once a bull run is mature, upside leaders will head the field to the downside. Hence, if markets were topping out this sector would have got hammered over the past few weeks,” the analyst said. “There was no evidence of that and consequently we maintain our bullish stance.”

Consumer Discretionary Select Sector SPDR Fund holds 81 stocks.

The ETF is “fairly concentrated and owns a variety of names that are tied to consumer spending, including retail companies, restaurants, media companies, apparel and luxury goods companies, automobile manufacturers, and leisure firms,” says Robert Goldsborough at Morningstar in an analyst report on the fund.

“Because this fund invests in a variety of companies and industries, it limits investors’ exposure to any single risk factor, meaning that even a disaster at a single company shouldn’t set back this ETF’s performance too far,” Goldsborough said. “Still, this ETF is best treated as a tactical satellite holding to complement a diversified portfolio and for investors looking to bulk up their exposure to the consumer.”

Consumer Discretionary Select Sector SPDR Fund


The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.