ETF Trends
ETF Trends

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.

XLY, the largest consumer discretionary ETF, is up 9% year-to-date, topping the S&P 500 along the way. Amazon.com Inc. (NASDAQ: AMZN) is a big reason. Shares of the e-commerce juggernaut are up 20.3% this year and that is important to XLY and cap-weighted consumer discretionary ETFs because Amazon is the largest holding by wide margins in these ETFs. In fact, only a handful of S&P 500 members sport larger market caps than Amazon’s $431 billion.

Rivals to XLY include the Vanguard Consumer Discretionary (NYSEArca: VCR) and Fidelity MSCI Consumer Discretionary Index (NYSEArca: FDIS).

As has been widely documented this year, traditional brick-and-mortar retailers are in perilous positions as shoppers continue gravitating to online venues. The the SPDR S&P Retail ETF (NYSEArca: XRT), the largest retail-related exchange traded fund, has a small weight to Amazon and has been struggling while discretionary and retail ETFs with big Amazon exposure are soaring.

The “AMZN vs. the rest of Retail” theme has been a constant one for quite some time now.  And with the XRT testing its lows in early April as AMZN was simultaneously making new highs, this chatter grew even louder. For the Consumer Discretionary space in general, though a breakout like we saw yesterday wouldn’t have been possible if it wasn’t for a much greater amount of participation,” according to an Instinet note posted by Crystal Kim of Barron’s.

The trend away from traditional department stores and apparel retailers to online shopping destinations should benefit the Amplify Online Retail ETF (NasdaqGM: IBUY), which debuted last year. IBUY, which is comprised of global companies that generate at least 70% of revenue from online or virtual sales, has been one of the best-performing retail ETFs since its inception.

Amazon is part of the IBUY lineup.

“Consider this, the XLY breakout is crystal clear on its daily chart, so how many of its holdings do we think also made new highs on Thursday? Half? A third? A grand total of 11… And that’s just another indication of how relatively poor most of the stocks within Retail have been. 36% of the XLY’s components are in the bottom half of their 52 week ranges,” according to the Instinet note seen in Barron’s.

For more information on the consumer sector, visit our consumer discretionary category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.