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.
SEE MORE: 21 Consumer Discretionary ETFs for Economy Growth
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.
[related_stories]XLY is usually a stout performer in the fourth quarter.
“Over the past 15 years’ worth of fourth quarters, the Consumer Discretionary Select Sector SPDR Fund (XLY) has averaged a total return of 6.12 percent, easily besting the 4.6 percent return for the Standard & Poor’s 500 index over those 15 fourth quarters, but the index’s total average return from 2001 through the end of 2015,” according to US News and World Report.
On the other hand, economists and investors waiting on wage growth to catch up to the boom. When the economy is at full employment, wages grow about 3% to 3.5% per year, but wages are only rising 2.5% so far.
Related: ETFs to Follow Growth of Amazon and E-Commerce
“It’s not as if there aren’t fundamental reasons for consumer stocks to underperform. Morgan Stanley strategist Adam Parker notes that the discretionary sector’s outperformance began when the Federal Reserve cut rates by three-quarters of a point in January 2008, and continued until it hiked rates for the first time in December 2015. Another rate hike would also weigh on the sector,” according to Barron’s.
For more information on the consumer sector, visit our consumer discretionary category.
Consumer Discretionary Select Sector SPDR (NYSEArca: XLY)
