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

Looking for broad exposure to the Consumer Discretionary - Broad segment of the equity market? You should consider the Consumer Discretionary Select Sector SPDR ETF (XLY), a passively managed exchange traded fund launched on 12/16/1998.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Additionally, sector ETFs offer convenient 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 7, placing it in top 44%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $21.01 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

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.12%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 0.57%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, 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) accounts for about 23.06% of total assets, followed by Tesla Inc (TSLA) and Home Depot Inc. (HD).

The top 10 holdings account for about 68.80% of total assets under management.

Performance and Risk

The ETF has added roughly 20.17% so far this year and it's up approximately 27.09% in the last one year (as of 10/20/2021). In that past 52-week period, it has traded between $142.97 and $191.32.

The ETF has a beta of 1.11 and standard deviation of 24.12% for the trailing three-year period, making it a medium risk choice in the space. With about 65 holdings, it effectively diversifies company-specific risk.

Alternatives

Consumer Discretionary Select Sector SPDR ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XLY is a great option for investors seeking exposure to the Consumer Discretionary ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

First Trust Consumer Discretionary AlphaDEX ETF (FXD) tracks StrataQuant Consumer Discretionary Index and the Vanguard Consumer Discretionary ETF (VCR) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index. First Trust Consumer Discretionary AlphaDEX ETF has $1.95 billion in assets, Vanguard Consumer Discretionary ETF has $6.82 billion. FXD has an expense ratio of 0.63% 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.