Exchange Traded Funds (ETFs)

Special 10-Part Series on the Premier Sector Funds: Discretion Advised

Welcome to the third installment of my special 10-part series on the premier sector funds. This week, we turn our attention to the often-volatile, consumer-discretionary sector.

The term “consumer discretionary” refers to companies and sectors of the market that sell non-essential consumer goods. Such goods include leisure, entertainment, restaurants, luxury items, retail and other diversified consumer services. Unlike consumer staples, the health of consumer-discretionary stocks is largely dependent on consumer spending cycles, as consumers are far less likely to purchase non-essential goods during periods of economic difficulty.

Fortunately, despite rising inflation, consumers kept spending in 2024. It is a trend which analysts are hopeful will continue into 2025, especially if the Fed keeps providing rate cuts.

Keeping that in mind, let’s now turn our attention towards the Consumer Discretionary Select Sector SPDR Fund (XLY), a thematic exchange-traded fund (ETF). Launched in 1998 by State Street, XLY is a portfolio of U.S. large-cap consumer-discretionary stocks. XLY’s stocks represent the broad sector, despite its concentration in the largest names.

As a part of the Select Sector SPDR suite, the fund pulls its holdings from the S&P 500. That differs from some competing funds.

XLY has a total of 50 holdings, comprising of some of the biggest names on the broader market today. Its top holdings and their weightings include Amazon.com Inc (AMZN), 23.21%; Tesla, Inc (TSLA), 21.88%; Home Depot Inc (HD), 6.94%; Booking Holdings Inc (BKNG), 4.02%; McDonald’s Corp (MCD), 3.65%; Lowe’s Cos Inc (LOW), 3.45%; TJX Cos Inc. (TJX), 3.26%; Starbucks Corp (SBUX), 2.46%; NIKE Inc B (NKE), 2.16% and Chipotle Mexican Grill Inc. (CMG), 2.07%.

Exclusive ETF Talk: Finding Value in Your Brokerage

The fund has net assets of around $24.62 billion and a low expense ratio of 0.09%. It is up 11.83% over the last month, 24.47% over the last three months and 34.33% year to date.

Chart courtesy of StockCharts.com.

The consumer-discretionary sector can be a volatile one for investors. And while consumer spending looks to be healthy going into 2025, any onset of adverse market conditions could always change that. As usual, investors should do their due diligence before adding any stock, fund or ETF to their portfolios.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.