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Should You Invest in the Consumer Discretionary Select Sector SPDR ETF (XLY)?

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Designed to provide broad exposure to the Consumer Discretionary - Broad segment of the equity market, the Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) is a passively managed exchange traded fund launched on 12/16/1998.

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Consumer Discretionary - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 10, placing it in bottom 38%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $19.46 billion, making it the largest ETF attempting to match the performance of the Consumer Discretionary - Broad segment of the equity market. XLY seeks to match the performance of the Consumer Discretionary Select Sector Index before fees and expenses.

The Consumer Discretionary Select Sector Index seeks to provide an effective representation of the consumer discretionary sector of the S&P 500 Index.

Costs

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.09%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 0.77%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Consumer Discretionary sector--about 100% of the portfolio.

Looking at individual holdings, Amazon.com Inc (AMZN - Free Report) accounts for about 23.89% of total assets, followed by Tesla Inc (TSLA - Free Report) and Home Depot Inc (HD - Free Report) .

The top 10 holdings account for about 70.17% of total assets under management.

Performance and Risk

Year-to-date, the Consumer Discretionary Select Sector SPDR ETF has gained about 1.83% so far, and is up about 6.16% over the last 12 months (as of 07/25/2024). XLY has traded between $148.04 and $194.70 in this past 52-week period.

The ETF has a beta of 1.20 and standard deviation of 24.77% for the trailing three-year period, making it a medium risk choice in the space. With about 54 holdings, it effectively diversifies company-specific risk.

Alternatives

Consumer Discretionary Select Sector SPDR ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XLY is a sufficient option for those seeking exposure to the Consumer Discretionary ETFs area of the market. Investors might also want to consider some other ETF options in the space.

IShares U.S. Home Construction ETF (ITB - Free Report) tracks Dow Jones U.S. Select Home Construction Index and the Vanguard Consumer Discretionary ETF (VCR - Free Report) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index. IShares U.S. Home Construction ETF has $2.87 billion in assets, Vanguard Consumer Discretionary ETF has $5.42 billion. ITB has an expense ratio of 0.40% and VCR charges 0.10%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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