The consumer discretionary sector is sensitive to economic cycles, but despite the sluggish U.S. economy, consumer strength has been prevalent in 2012. Should the economic climate become favorable and the current uptrend continue, focused stocks and exchange traded funds will enter a bull phase.

“Perhaps more importantly, however, is how retail stocks have fared on a relative basis when compared to the S&P 500. This is perhaps a better indicator of seasonal interest, with retail sales numbers drumming up interest in the stocks themselves. Not surprisingly, March (+2.51%) and February (+1.71%) ranked among the top three months, given the fact that retailers typically announce their fiscal fourth quarter results over this two-month period (November, at +1.70%, was also in the top three months for relative outperformance, probably related to Black Friday hoopla),” S&P Capital wrote in a recent note.

Consumer confidence is on the rise as retail sales jumped 1.1% in September which produced the best two months of sales in two months, reports Associated Press. In September, retailers saw gains in almost every major category. That contrasted with August’s retail sales, which rose almost entirely on the strength of auto sales and higher gas prices. [Why Retail ETFs Need to Get Back on Track]

The Consumer Discretionary Select Sector SPDR Fund (NYSEArca: XLY) has returned 20.9% year-to-date and is rated Overweight by S&P Capital. The top holding is Wal-Mart (NYSE: WMT) at 6.6%. The Vanguard Consumer Discretionary Index Fund (NYSEArca: VCR) is rated Overweight and has returned 19.6% year-to-date. [Retail Sector ETFs Rated Overweight by S&P]

ETFs continue to be an effective method of gaining exposure to the retail or consumer discretionary sector. The risk mitigation of investing in a number of shares takes the edge off a single company performing poorly. Analysts report that consumers do not seem too cautious about spending habits and the current positive sentiment will boost the sector. The retail holiday season is also around the corner, solidifying the case for adding retail exposure to an investment portfolio. [Defend Your Portfolio with Consumer Staples ETFs]

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