The Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) and rival consumer discretionary exchange traded funds are among this year’s best-performing sector ETFs and with earnings expectations for the sector high, XLY and friends could deliver even more upside for investors as 2017 moves forward.
Amazon.com Inc. (NASDAQ: AMZN), often the biggest holding in XLY and other cap-weighted discretionary ETFs, is boosting this group of funds. The e-commerce giant keeps surging and is at a point where its market value is exceeded by just a small number of S&P 500 companies.
Last year, the internet retail sub-industry revealed the highest earnings growth at 143.1% for all 13 retail sub-industries, according to FactSet. In contrast, the department store sub-industry reported the largest year-over-year drop in earnings of all 13 retail sub-industries at -47.8%. That bodes well for XLY and more focused ETFs, such as the Amplify Online Retail ETF (NasdaqGM: IBUY).
“On one hand, the consumer discretionary sector was the best-performing sector in April (and the second-best sector year to date); on the other, the consumer spending figure reported Friday was quite weak, with the Bureau of Economic Analysis announcing that personal consumption declined quarter over quarter in its advance estimate of first-quarter economic growth,” reports CNBC.
Rivals to XLY include the Vanguard Consumer Discretionary (NYSEArca: VCR) and Fidelity MSCI Consumer Discretionary Index (NYSEArca: FDIS). Both VCR and FDIS are cap-weighted funds featuring Amazon as their largest holding.
“Digging one level deeper, a few stocks have had outsized effects on the sector this year, with online retail giant Amazon being the most prominent. Home Depot and Comcast (parent company of NBCUniversal and CNBC) have also been big contributors,” according to CNBC.
Home Depot and Comcast are also major components in XLY, VCR and FDIS. Investors should note that the consumer discretionary sector, the fourth-largest sector weight in the S&P 500, is a cyclical group, meaning it is usually more volatile than the broader market.
“Consumer discretionary firms are more volatile than the broader market. During the past 10 years, this ETF has had a standard deviation of 18.3 percent compared with the S&P 500’s 15.3 percent,” noted Morningstar.
For more information on the consumer sector, visit our consumer discretionary category.