Consumer Discretionary ETFs Rebound, Gain Cash

ETF Trends

The Labor Department said the U.S. economy added 175,000 jobs last month, easily topping the consensus estimate calling for a gain of 149,000 new jobs.  Consumer discretionary stocks and exchange traded funds may have told investors weeks ago that the jobs report would be better than expected.

After starting 2014 on a downbeat note, the Consumer Discretionary Select Sector SPDR (XLY) and rival discretionary ETFs have bounced back in a big way. In the past month, XLY, the largest discretionary ETF by assets, is up 10.3%. So is the iShares US Consumer Services ETF (IYC) while the Vanguard Consumer Discretionary ETF (VCR) is higher by 10.7%.

Struggles by those ETFs and others to start 2014 arguably caught some investors off guard as XLY was last year’s top performer among the nine sector SPDR ETFs. Additionally, the sector is in a multi-year run of outpacing the broader market. Investors should also consider the length of the discretionary sector’s out-peformance of the broader market. Consumer discretionary stocks have outperformed the S&P 1500 in each of the past six calendar years through 2013, according to S&P Capital IQ. [Mixed View on Discretionary ETFs]

Investors have not been shy about returning to discretionary ETFs following some early-year lethargy. “Average net fund flows for consumer-discretionary ETFs in the past 20 days were $72.6 million, according to data compiled by Bloomberg.”  Citing Jim Stellakis, founder and director of research at Technical Alpha, Bloomberg reports there is “no lasting follow-through” on bearish bets against XLY.

There have been other signs pointing to discretionary ETFs bouncing back. For example, XLY’s relative strength as measured against the Consumer Staples Select Sector SPDR (XLP) , an indicator used by some technical analysts as a measure of broader market health, has remained strong. [Discretionary Divergence From Staples a Positive Thing]

Retail ETFs are also benefiting. The SPDR S&P Retail ETF (XRT) is up more than 12% in the past month, a resurgence led by an array of retailers, including controversial names such as Best Buy (BBY), J.C. Penney (JCP) and Sears (SHLD). [Time to Shop for Retail ETFs]

Three Dow components – Walt Disney (DIS), Home Depot (HD) and McDonald’s (MCD) – combine for 16.5% of XLY’s weight. Amazon (AMZN) is the ETF’s largest holding at a weight of 6.56%.

Consumer Discretionary Select Sector

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ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of Amazon.

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.

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