The ETF Financial Pros All Want

Everything sucks. At least that’s what the the ‘Misery Index,’ a measure of economic stress felt by everyday people, says.

Yet, consumers keep spending like we’re in an economic boom.

No one can seem to reconcile these divergent views.

But that isn’t necessary to make money.

Right now, financial pros are digging into the SPDR Consumer Discretionary ETF XLY at a rate nearly 5x the next most searched sector, according to our Trackstar data.

The XLY outperformed the SPY by nearly double over the last 30 days.

And if we really do achieve that ‘soft landing,’ things could just be getting started.

Key Facts About XLY

• Net assets: $19.67 billion
• 12-month trailing yield: 0.77%
• Inception: Dec 16, 1998
• Expense ratio: 0.10%
• Number of holdings: 55

Consumer discretionary spending tends to wax and wane with economic activity. We spend more when we have more on televisions, cars, clothing, and other goods.

The XLY holds a basket of 55 consumer discretionary names weighted by market cap. This gives higher weight to larger companies like Amazon and Tesla.

Source: State Street

Despite a fairly concentrated holding of stocks, the ETF is spread evenly amongst the top four sub-sectors.

Source: State Street

Performance

The XLY lagged behind the tech-heavy S&P 500 from the pandemic through the fall of this year. 

That’s when things turned around as consumer discretionary stocks began to recover, outperforming by around 3%-4% in total.

Source: State Street

It’s worth noting that over a 10-year period, the XLY outperformed the S&P 500 by ~10% in total.

Competition

As we close out 2023, we decided a great way to evaluate the XLY was to compare it to other sector ETFs from State Street.

• SPDR S&P Oil & Gas Exploration & Production ETF (XOP): We discussed the XOP in a recent writeup. This ETF is an equal-weight ETF holding stocks related to oil and natural gas exploration and production.
• Energy Select Sector SPDR Fund (XLE): The XLE is a market cap-weighted ETF portfolio with stocks that operate anywhere in the energy supply chain, from production to transportation to marketing.
• SPDR S&P Biotech ETF (XBI): Picking individual biotech companies can be a hassle. The XBI diversifies its capital among 124 companies using an equal-weighting methodology.
• Health Care Select Sector SPDR Fund (XLV): The XLV owns companies in the healthcare sector, from pharmaceuticals to equipment and supplies to healthcare providers and healthcare technology, and it is market cap-weighted.

The XLY significantly outperforms equal-weight ETFs and the market-cap-weight ETFs as well. While its dividend isn’t high, it keeps expenses remarkably low at just 0.10%.

Our Opinion 10/10 

The XLY is a fabulous consumer-discretionary ETF with diverse exposure in the sector.

Importantly, it uses market cap weighting, allowing the top performers to account for a larger proportion of the ETF.

With a low expense ratio and plenty of liquidity, the XLY should be a core holding for any well-crafted investment portfolio.

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