Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) is leading the nine major U.S. sectors by a slight margin so far this year with a total return of more than 20%.
Health Care Select Sector SPDR (NYSEArca: XLV) and Financial Select Sector SPDR (NYSEArca: XLF) are close behind with similar 2013 gains.
The leading sector ETFs this year tend to be those that benefit from rising interest rates and an expanding economy.
In particular, consumer discretionary funds are benefitting from improving confidence as Americans are willing to spend more after saving rates jumped after the financial crisis. Consumer spending powers about 70% of the U.S. economy.
Last week, the University of Michigan said consumer sentiment held near a six-year high in June as home prices continue to rise.
“The survey shows Americans are feeling better about the economy, despite wild gyrations in the stock market,” USA Today reported.
Also last week, the Commerce Department said consumer spending rose 0.3% in May to erase the previous month’s decline.
“It’s still a picture of better growth, but there is little to suggest that we are going to get the kind of break-out growth that would entail a tighter environment from policymakers in the near future,” said Brian Levitt, an economist at OppenheimerFunds, in a Reuters article.
Next page: Consumer discretionary stocks on a multiyear tear
XLY, the consumer discretionary ETF, has been on an incredibly strong run since U.S. stocks bottomed in 2009 after the credit crisis.
The sector fund has outperformed the S&P 500 every calendar year since the end of 2008 and is on track to top the index again this year.
XLY has a five-year annualized return of 17.3% versus 7.4% for the S&P 500. The consumer discretionary ETF is trading near an all-time high.
The fund owns retail firms, restaurants, media companies, apparel and luxury goods companies, automobile manufacturers, and leisure firms, according to a Morningstar profile of XLY.
The ETF is “a cyclical play tied to consumer spending,” says Morningstar analyst Robert Goldsborough. “At the same time, cyclical firms usually do rally before the economy fully emerges from a slump. Consumer confidence in the United States has risen sharply in recent months, recently hitting its highest levels in five years as consumers hold a more positive outlook toward job growth and the economy. In addition, consumer net worth, or consumer assets, recently reached a number exceeding pre-financial crisis levels.”
The chart below shows the relative performance of the consumer discretionary ETF versus the S&P 500.
