The consumer discretionary sector was a leadership for U.S. stocks coming for several years after the March 2009 market bottom.
This year, the discretionary group has not only ceded its leadership mantle, the sector is the worst performer in the S&P 500. Encouraged by solid U.S. economic data and some compelling valuations, investors are returning to consumer discretionary exchange traded funds.
“Investors pumped $1.79 billion into consumer discretionary exchange-traded funds in the five trading days through Aug. 6, the most of any group,” reports Lindsey Rupp for Bloomberg.
The Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), the largest consumer discretionary ETF by assets, added the bulk of that total, tacking on $1.34 billion for the week ending Aug. 6. Only the iShares Core S&P 500 ETF (NYSEArca: IVV) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) have added more new third-quarter assets than the $1.45 billion gained by XLY. [Waiting on a Discretionary ETF Bounce]
Data points that show the U.S. economy, the world’s largest, is firming are driving new cash to discretionary ETFs.
“Improvements in the economy should also benefit companies that rely on consumers spending money on goods and services that aren’t necessities. Gross domestic product rose at a 4 percent annualized rate from April through June, exceeding estimates, after shrinking 2.1 percent in the first quarter, the Commerce Department said July 30,” according to Bloomberg.
Sturdiness from the media sub-sector is also serving as a positive catalyst for discretionary ETFs. Rupert Murdoch’s 21st Century Fox (NasdaqGS: FOXA), Time Warner (NYSE: TWX) and Dow component Walt Disney (NYSE: DIS) each delivered solid earnings reports this week.
Media is the largest industry weight in XLY with an allocation of 30.5%, about 1,350 basis points above the ETF’s weight to specialty retail stocks. Disney, Time Warner and Fox combine for 13.2% of XLY’s weight. The PowerShares Dynamic Media Portfolio (NYSEArca: PBS) has added $5.1 million in the current quarter. Time Warner and Disney combine for over 10% of PBS. [Tune Into the Media ETF]
XLY is off 1.8% this year, making it the worst of the nine sector SPDRs. The fund has dragged lower by a tumble in shares of Amazon (NYSE: AMZN) as well as Home Depot (NYSE: HD) and McDonald’s (NYSE: MCD), two the worst performers in the Dow Jones Industrial Average.
Consumer Discretionary Select Sector SPDR
Tom Lydon’s clients own shares of EEM.