After a series of solid retail earnings reports recently, market bull Jim Cramer does not see stagflation in the U.S. economy. “There’s nothing stagnant about this economy. In fact, retailers may be experiencing their strongest quarter in history,” Cramer asserted recently.

Unemployment woes appear to be subsiding, with the Bureau of Labor Statistics reporting 531,000 new jobs added in October and strong private payroll gains. In addition, President Biden signed a long-awaited trillion-dollar bipartisan infrastructure bill into law recently, which could boost the U.S. economy further. The spending package should not add to inflation worries while stimulating the economy, because spending from it is expected to be stretched over a long period.

Cyclical stocks tend to reflect broader economic performance. Thus, ETFs with exposure to cyclical sectors—Consumer Discretionary Select Sector SPDR Fund (XLY - Get Rating), iShares US Consumer Discretionary ETF (IYC - Get Rating), SPDR S&P Retail ETF (XRT - Get Rating), and Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD - Get Rating)—should perform well. These funds are rated A (Strong Buy) in our proprietary POWR Ratings system.

Consumer Discretionary Select Sector SPDR Fund (XLY - Get Rating)

XLY seeks to replicate the price and yield performance before publicly traded equity securities expenses in the Consumer Discretionary Select Sector Index. It invests in the securities of companies that include hotels, restaurants, textiles, luxury goods, household durables, and automobiles. The fund provides an appealing option for investors who are looking to implement a sector-rotation strategy.

With $23.80 billion assets under management, as of November 16, XLY’s top holdings include Amazon.com, Inc. (AMZN), with a 20.73% weighting, Tesla Inc. (TSLA), with an 18.74% weighting, and Home Depot Inc. (HD), with a 9.13% weighting. It has a $206.76 NAV. Its 0.12% gross expense ratio  is significantly lower than the 0.52% category average. Over the past three months, its net fund flows came in at $1.19 billion.

XLY’s $1.09 annual dividend yields 0.54% at the prevailing share price. Its average four-year dividend yield stands at 1.08%. It has a 1.14 beta. The fund has gained 29.5% year-to-date and 10.1% over the past month to close yesterday’s trading session at $208.15.

XLY’s strong fundamentals are reflected in its POWR Ratings. The fund has an overall A rating, which equates to Strong Buy in our proprietary rating system. It has an A grade for Trade and Buy & Hold. In the 48-ETF Consumer-Focused ETFs group, it is ranked #1. The group is rated A.

Click here to see the additional POWR Ratings for XLY (Peer).

iShares US Consumer Discretionary ETF (IYC - Get Rating)

IYC aims to track the investment results of Russell 1000 Consumer Discretionary 40 Act 15/22.5 Daily Capped Index, offering consumers exposure to consumer cyclical and consumer staple companies and a few other sectors. The fund generally invests at least 80% of its assets in the component securities of the underlying index.

IYC has $1.49 billion assets under management, and over the past month, its net fund flows were $29.89 million. The fund’s top holdings include AMZN, with a 13.78% weighting, TSLA, with an 8.09% weighting, and HD, with a 4.75% weighting. It has a 0.41% expense ratio versus the 0.37% category average. It has an $86.03 NAV and a 1.11  beta.

IYC pays a $0.42 annual dividend, which yields 0.50% at its prevailing share price. Its average four-year yield stands at 0.80%.Its dividend payouts have increased at a 1.7% CAGR over the past three years, and 2.4% CAGR over the past five years. The stock has gained 28.3% over the past year and 22.1% year-to-date to close yesterday’s trading session at $86.08.

It is no surprise that IYC has an overall A rating, which translates to Strong Buy in our POWR Rating system. In addition, the ETF has an A rating for Trade and Buy & Hold. It is ranked #8 in the Consumer-Focused ETFs group.

To see the additional POWR Rating for Peer for IYC, click here.

SPDR S&P Retail ETF (XRT - Get Rating)

XRT seeks to provide investment results that correlate with the total return performance of an index derived from the retail segment of a United States total market composite index. Tracking the S&P Retail Select Industry Index, the ETF provides a targeted sub-sector exposure to the retail segment of the consumer discretionary space.

XRT’s top holdings as of November 16 include Dillard’s, Inc. (DDS) class A, with a weighting of 1.68%, Overstock.com, Inc. (OSTK), with a weighting of 1.42%, and Macy’s Inc. (M), with a weighting of 1.41%. The fund has $1.27 billion assets under management and a $101.74 NAV. Its 0.35% expense ratio is considerably lower than the 0.52% category average. Its one-month net flows came in at $439.67 million.

XRT’s $0.72 annual dividend yields 0.71% at the prevailing share price. Its average four-year dividend yield stands at 1.33%. In addition, the ETF’s dividends have increased at a 3.4% CAGR over the past three years and 3.6% over the past five years. It has a 1.52 beta. The fund has gained 58.2% year-to-date and 80.8% over the past year, to close yesterday’s trading session at $101.77.

This promising outlook is reflected in XRT’s POWR Ratings. The ETF has an overall A rating, which equates to Strong Buy in our proprietary rating system. It has an A grade for Trade, Buy & Hold, and Peer. It is ranked #9 in the same group.

Click here to see all POWR Ratings for XRT.

Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD - Get Rating)

RCD aims to track, before fees and expenses, the investment results of the S&P 500 Equal Weighted/Consumer Discretionary index, offering investors exposure to the consumer discretionary sector of the domestic economy. It is applicable for investors implementing sector rotation strategies and channeling exposure into the high beta industry.

With $597.70 million assets under management and a $159.91 NAV, RCD’s top holdings as of November 17 included Ford Motor Company (F), with a 2.34 fund weighting, TSLA, with a 2.20% weighting, and Dollar Tree, Inc. (DLTR), with a 2.17% weighting. The ETF has a 0.40% expense ratio, versus the 0.52% category average, and its one-year net flows stand at $94.13 million. It has a 1.54 beta. 

RCD pays a $0.60 annual dividend, which yields 0.38% at the current share price. It has a 1.34% four-year average yield of 1.34%. The ETF has gained 37.8% over the past year and 30.8% year-to-date, to close yesterday’s trading session at $159.95.

RCD has an overall A rating, which translates to Strong Buy in our POWR Rating system. It has a Trade, Buy & Hold, and Peer grade of A. It is ranked #13 in the same group.

Click here to see the POWR Ratings for RCD.

XLY shares were trading at $209.55 per share on Thursday afternoon, up $1.40 (+0.67%). Year-to-date, XLY has gained 30.93%, versus a 26.71% 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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