Is it Time to Shelve Consumer Discretionary ETFs?

For much of the current bull market, the consumer discretionary sector has been a leadership and Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) along with rival exchange traded funds tracking the sector have been solid performers.

This year has been different for XLY and rival cap-weighted consumer discretionary ETFs. These ETFs have posted only middling gains that easily trail the S&P 500. If not for the contributions of high-flying Amazon (NASDAQ: AMZN), usually the largest holding in traditional discretionary ETFs, these funds would like be in the red year-to-date.

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While Amazon is hot and on a meteoric rise, active managers like some of the other big names found in XLY and related ETFs.

“According to Credit Suisse data, fund managers favor many other consumer discretionary stocks as well. Amazon is understandably on the list of large-cap fund favorites, but so are Home Depot and Walt Disney, and so is Comcast (CMCA)—the only other top-five stock in the sector that’s up for the year. Starbucks and Nike are favorites of large-cap growth managers, while Under Armour is popular with mid-cap growth funds,” reports Ben Levisohn for Barron’s.

Starbucks and Nike are top 10 holdings in XLY. Nike is one of several Dow components found among the top 10 holdings cap-weighted discretionary ETFs. Unfortunately, the Dow’s discretionary stocks are among its worst-performing members this year.