Discretionary ETFs Show Signs of Life

The consumer discretionary sector is the worst-performing group in the S&P 500 this year. Reflecting the sector’s laggard status, three of the 10 worst non-leveraged exchange traded funds on a year-to-date basis are explicit discretionary plays or have ample exposure to the sector.

That does not mean investors should write-off the sector altogether and with the second half of the year nearly here, some discretionary ETFs are starting to show signs of a legitimate rebound. For example, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), the largest consumer discretionary ETF by assets, is up almost 2% in the past month and currently resides last than 1% below its 52-week high. [Data Could Support Discretionary ETFs]

XLY’s technicals indicate more upside could be afoot for the ETF.

“XLY is currently forming the handle portion of a 16-week long cup with handle pattern. Note that both the 10 and 40-week MAs are now pointing in the same direction,” notes Deron Wagner of Morpheus Trading Group.

It appears investors will need some convincing regarding the discretionary sector’s rebound. Amazon (NasdaqGS: AMZN) has been a drag on ETFs like XLY and the Vanguard Consumer Discretionary ETF (NYSEArca: VCR). Home Depot (NYSE: HD), another major component in many discretionary ETFs, is one of the worst-performing stocks in the Dow Jones Industrial Average this year. [Discreet Decline of Discretionary ETFs]

As a result, only three ETFs have seen larger year-to-date outflows than XLY while VCR has lost more than $196 million.