Consumer-discretionary stocks are widely known as consumer cyclical stocks, as they tend to be sensitive to economic cycles. Despite the inflationary pressures, we have seen consumer discretion to be resilient in recent years. As the holiday season approaches, consumer discretionary stocks are gaining momentum, and companies are bracing for increased demand.

Given the probable spike in consumer activities, three such ETFs are well positioned for investors to invest in, like Invesco Dynamic Leisure and Entertainment ETF (PEJ), Fidelity MSCI Consumer Discretionary Index ETF (FDIS), and The Consumer Discretionary Select Sector SPDR Fund (XLY).

According to the Bureau of Economic Analysis (BEA), consumer spending in the month of July 2024 was up by 0.5% or $103.80 billion, compared to June month’s spending increase of $57.60 billion. This rise in consumer spending is the broader trend in the economy: rising consumer confidence and disposable income.

Deloitte’s forecast suggests that this year retail sales are anticipated to increase between 2.3% and 3.3% during the holiday season. With e-commerce sales continuing to grow, particularly during the holidays, ETFs that include major online retailers stand to gain the most.

Consumer discretionary ETFs offer diversification, reducing the risk. This diversification offers a more balanced risk profile, which is especially crucial when the market is volatile. Furthermore, this makes ETFs a smart bet ahead of the shopping rush.

With that in mind, let’s evaluate the fundamentals of the featured Consumer-Focused ETFs, starting with number three:

ETF #3: Invesco Dynamic Leisure and Entertainment ETF (PEJ)

PEJ seeks to invest in stocks of companies operating across consumer discretionary, media and entertainment, retailing, distributors, durable goods distribution, leisure equipment and product distribution, and communication services sectors. The fund tracks the performance of the Dynamic Leisure & Entertainment Intellidex Index.

As of September 16, 2024, the fund had assets under management (AUM) of $236.60 million and an NAV of $46.52. PEJ has an expense ratio of 0.57%, compared to the category average of 0.55%.

The fund’s top holdings include Warner Bros Discovery Inc. (WBD) with a 5.24% weighting, Live Nation Entertainment, Inc. (LYV) at 5.12%, and Book Holdings Inc. (BKNG), and Sysco Corporation (SYY) at 5.07% and 5.03%, respectively. It currently has a total of 32 holdings.

The fund pays an annual dividend of $0.19, translating to a 0.42% yield at the prevailing price level. The fund’s four-year average yield is 0.56%.

PEJ has gained 16.8% over the past year and 11.5% over the past nine months to close the last trading session at $46.54. Its fund inflows came in at $2.68 million over the past five days.

PEJ’s POWR Ratings reflect its promising prospects. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It also has an A grade for Trade and Buy & Hold. Of the 48 ETFs in the B-rated Consumer-Focused ETFs group, PEJ is ranked #14. To access all of PEJ’s POWR Ratings, click here.

ETF #2: Fidelity MSCI Consumer Discretionary Index ETF (FDIS)

FDIS invests in stocks of companies operating across consumer discretionary sectors and tracks the MSCI USA IMI Consumer Discretionary 25/50 Index. This fund is managed by Fidelity Management & Research Company LLC and also co-managed by BlackRock Fund Advisors.

With $1.66 billion in AUM, its top holdings are Amazon.com, Inc. (AMZN) with a 21.05% weighting in the fund, Tesla, Inc. (TSLA) at 11.10% weight, followed by Home Depot, Inc. (HD) and McDonald’s Corporation (MCD) with 6.72% and 3.83% weightings, respectively. The ETF has a total of 274 holdings.

The ETF’s expense ratio is 0.08%, lower than the category average of 0.55%. FDIS fund inflows were $251.57 million over the past year and $188.33 million over the past three months.

FDIS pays an annual dividend of $0.63, which translates to a 0.74% yield at the current price level. The fund’s dividend payouts have grown at a 16.5% CAGR over the past three years. Its four-year average yield is 0.74%.

Over the past year, FDIS has gained 14.8% to close the last trading session at $85.15. The fund’s NAV was $85.17 as of September 16, 2024.

FDIS’ solid fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

The fund has an A grade for Trade and Buy & Hold and a B for Peer. FDIS is ranked #6 in the same B-rated group. Click here to access all the FDIS ratings.

ETF #1: The Consumer Discretionary Select Sector SPDR Fund (XLY)

SSGA Funds Management, Inc. manages XLY. The fund invests in growth and value stocks of companies that are operating across consumer discretionary sectors. It seeks to track the performance of the Consumer Discretionary Select Sector Index.

As of September 13, XLY had $18.5 billion in assets under management and an NAV of $192.10. Its expense ratio of 0.09% compares to the category average of 0.55%.

The fund’s top holdings include AMZN with a 21.58% weight, TSLA with a 16.53% weight, HD with a 9.74% weight, and MCD with a 4.86% weight. It has a total of 52 holdings.

XLY’s trailing-12-month dividend of $1.40 yields 0.73% on the current price level, while its four-year average dividend yield is 0.78%. Its dividend payouts have grown at a 7.8% CAGR over the past three years.

Over the past five days, the fund’s net outflow came in at $416.58 million. It has gained 11.9% over the past year to close its last trading session at $192.15.

XLY’s promising outlook is reflected in its POWR Ratings. The ETF has an overall A rating, equating to a Strong Buy in our proprietary rating system.

It has an A grade for Trade and Buy & Hold and a B for Peer. It is ranked #2 out of 48 ETFs in the same Consumer-Focused ETFs group. To see XLY’s POWR ratings, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

XLY shares were trading at $194.76 per share on Tuesday morning, up $2.61 (+1.36%). Year-to-date, XLY has gained 9.39%, versus a 19.80% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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