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

The Consumer Discretionary Select Sector SPDR ETF (XLY) was launched on 12/16/1998, and is a passively managed exchange traded fund designed to offer broad exposure to the Consumer Discretionary - Broad segment of the equity market.

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.

Sector ETFs are also funds of convenience, offering many 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 10, placing it in bottom 38%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $21.51 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

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.08%, making it the least expensive product in the space.

It has a 12-month trailing dividend yield of 0.83%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. 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 21.63% of total assets, followed by Tesla Inc (TSLA) and Home Depot Inc (HD).

The top 10 holdings account for about 68.57% of total assets under management.

Performance and Risk

The ETF has lost about -4.46% so far this year and it's up approximately 23.19% in the last one year (as of 06/02/2025). In that past 52-week period, it has traded between $170.05 and $239.43.

The ETF has a beta of 1.22 and standard deviation of 24.03% for the trailing three-year period, making it a medium risk choice in the space. With about 54 holdings, it effectively diversifies company-specific risk.

Alternatives

Consumer Discretionary Select Sector SPDR ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XLY is a sufficient option for those seeking exposure to the Consumer Discretionary ETFs area of the market. Investors might also want to consider some other ETF options in the space.

IShares U.S. Home Construction ETF (ITB) tracks Dow Jones U.S. Select Home Construction Index and the Vanguard Consumer Discretionary ETF (VCR) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index. IShares U.S. Home Construction ETF has $2.15 billion in assets, Vanguard Consumer Discretionary ETF has $5.82 billion. ITB has an expense ratio of 0.39% and VCR charges 0.09%.

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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This article originally published on Zacks Investment Research (zacks.com).

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