{"id":3655,"date":"2025-11-05T18:58:46","date_gmt":"2025-11-05T18:58:46","guid":{"rendered":"http:\/\/blog.valuengine.com\/?p=3655"},"modified":"2025-11-05T18:58:46","modified_gmt":"2025-11-05T18:58:46","slug":"evolution-of-gics-consumer-discretionary-sector-and-xly-etf","status":"publish","type":"post","link":"http:\/\/blog.valuengine.com\/index.php\/evolution-of-gics-consumer-discretionary-sector-and-xly-etf\/","title":{"rendered":"Evolution of GICS Consumer Discretionary Sector and XLY ETF"},"content":{"rendered":"

The Consumer Discretionary sector of the Global Industry Classification Standard (GICS) was established in 1999 to represent cyclical industries. It has undergone several significant revisions to reflect the evolution of the global economy, primarily in 2018 and 2023, as business models shifted.\u00a0<\/span><\/p>\n

All research 5,000+ stocks and 700+ ETFs updated on <\/span>www.ValuEngine.com<\/span><\/a><\/p>\n

When GICS was launched in 1999 by MSCI and S&P, the Consumer Discretionary sector was defined to include companies that sell goods and services considered non-essential and sensitive to economic cycles. Prior to GICS, institutions had usually referred to this sector as Consumer Durables and Consumer Non Durables. Its manufacturing segment included automobiles, household durable goods, leisure equipment, and apparel, while the service segment included media, hotels, and restaurants.\u00a0<\/span><\/p>\n

In 2018 and driven by institutional pressure against so much weight of the S&P 500 being in the information technology sector, many companies and industry groups were reclassified.\u00a0 On a net basis, the single largest change affecting the Consumer Discretionary sector was the absorption caused by the migration of e-commerce companies such as Ebay (<\/span>EBAY<\/b>) and Alibaba (<\/span>BABA<\/b>)\u00a0 that moved from Information Technology into Consumer Discretionary .\u00a0 A counter reduction of the Consumer Discretionary sector\u2019s weight occurred\u00a0 when Media Industry companies were moved into the newly renamed Communication Services Sector (formerly Telecommunications).\u00a0 The new Communication Services sector\u2019s subsequent quadrupling of weight, however, had little to do with these media companies; it was due to the absorption of e-communications companies such as Facebook (Now <\/span>META<\/b>), Alphabet (<\/span>GOOG<\/b>), and Netflix <\/span>\u00a0(NFLX<\/b>).\u00a0\u00a0<\/span><\/p>\n

Current ValuEngine reports on all covered stocks and ETFS can be viewed<\/span> HERE<\/b><\/a><\/p>\n

In 2023, more GICS reclassifications further changed the nature of the constitution of the Consumer Discrestionary sector.\u00a0 The most important change was the loss of retailers, which generated most of their revenues from consumer staples products.\u00a0 Thus, companies such as Target and Dollar General were moved to Consumer Staples.\u00a0 Counterbalancing this somewhat was another infusion from the Information Technology Sector.\u00a0 Companies focused on travel-related data joined the Consumer Discretionary Sector.\u00a0\u00a0<\/span><\/p>\n

This history is to provide context for something we did not expect to see in checking out the year-to-date returns at the beginning of this year. The Select Sector SPDR ETF representing Consumer Nondurables, <\/span>XLP<\/b>, the most noncyclical of the 11 GICS, was the worst performing sector over the past 12 months, with a gain of just 1.7%. That made sense in a predominantly \u201crisk-on\u201d market.\u00a0 The least volatile stocks are used as sources of funds for the most volatile stocks.\u00a0 Historically, the most volatile stocks were stocks that moved up and down the most with economic GDP cycles, hence Consumer Cyclicals. Ostensibly, the ETF now representing that sector is <\/span>XLY<\/b>, the Select Sector SPDR Consumer Discretionary ETF.\u00a0\u00a0<\/span><\/p>\n

When the Select Sector SPDRs were first introduced around the turn of the century, one of the most frequent hedge fund risk-on vs. risk-off trades involved <\/span>XLP <\/b>and <\/span>XLY.\u00a0 <\/b>When the economy was expected to weaken and turn toward recession, the risk-off trade was long <\/span>XLP <\/b>and short <\/span>XLY.\u00a0 <\/b>Conversely, when the economy looked like it was starting to recover (e.g., March 2003; March 2009), the risk-on trade was long <\/span>XLY <\/b>and short <\/span>XLP<\/b>.\u00a0 In this strongly risk-on year, where the SPDR S&P 500 Portfolio ETF (<\/span>SPLG<\/b>) has risen 17.1%, <\/span>XLP<\/b>\u2019s last-place performance is precisely what we expected.\u00a0 However, <\/span>XLY\u2019s <\/b>gain is a mere 7.6%, less than half of that of <\/span>SPLG.\u00a0 <\/b>Therefore, the changes in the underlying constitution of the Consumer Discretionary apparently means that it is no longer the cyclical opposite of the Consumer Staples Sector. Yet, in emulating market price movements using the classical 3-year weekly-moving-average Beta, they should behave as opposites with <\/span>XLY<\/b> having the second highest Beta of 1.13 while <\/span>XLP <\/b>has the second lowest Beta of 0.61.\u00a0 To clarify the above, this table displays the aggregate year-to-date returns of the 11 Select Sector SPDRs.\u00a0 It is very surprising that despite being led by Amazon <\/span>(AMZN)<\/b> and Tesla <\/span>(TSLA)<\/b>, <\/span>XLY <\/b>has not ridden this phase of a rising GDP cycle as well as <\/span>XLU <\/b>or <\/span>XLI<\/b>, generally not considered as closely tied to economic growth.\u00a0\u00a0<\/span><\/p>\n

Current ValuEngine reports on all covered stocks and ETFS can be viewed<\/span> HERE<\/b><\/a><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Symbol<\/b><\/td>\nSector Name<\/b><\/td>\nYear-to-Date (YTD) Return<\/b><\/td>\n<\/tr>\n
XLK<\/b><\/td>\nTechnology<\/span><\/td>\n29.92%<\/b><\/td>\n<\/tr>\n
XLC<\/b><\/td>\nCommunication Services<\/span><\/td>\n23.42%<\/span><\/td>\n<\/tr>\n
XLU<\/b><\/td>\nUtilities<\/span><\/td>\n20.18%<\/span><\/td>\n<\/tr>\n
XLI<\/b><\/td>\nIndustrials<\/span><\/td>\n17.70%<\/span><\/td>\n<\/tr>\n
XLF<\/b><\/td>\nFinancials<\/span><\/td>\n12.67%<\/span><\/td>\n<\/tr>\n
XLB<\/b><\/td>\nMaterials<\/span><\/td>\n8.14%<\/span><\/td>\n<\/tr>\n
XLY<\/b><\/td>\nConsumer Discretionary<\/span><\/td>\n7.56%<\/span><\/td>\n<\/tr>\n
XLE<\/b><\/td>\nEnergy<\/span><\/td>\n6.89%<\/span><\/td>\n<\/tr>\n
XLRE<\/b><\/td>\nReal Estate<\/span><\/td>\n6.04%<\/span><\/td>\n<\/tr>\n
XLV<\/b><\/td>\nHealth Care<\/span><\/td>\n2.57%<\/span><\/td>\n<\/tr>\n
XLP<\/b><\/td>\nConsumer Staples<\/span><\/td>\n1.67%<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

With this as background, we turn our \u201csector spotlight\u201d to Consumer Discretionary this week.\u00a0 According to ETFdb.com, there are currently 13 broad Consumer Discretionary ETFs and three are leveraged.\u00a0 While leveraged ETFs may be useful tools for hedge funds, this blog discards them when it comes to comparing and analyzing sector ETFs.\u00a0 This leaves us with 10 ETFs that focus on the broad sector, as seen here.\u00a0<\/span><\/p>\n

Current ValuEngine reports on all covered stocks and ETFS can be viewed<\/span> HERE<\/b><\/a><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Ticker<\/b><\/td>\nName<\/span><\/td>\nAssets (Billions)<\/span><\/td>\n1 Month Returns<\/span><\/td>\nYTD Price Change<\/span><\/td>\n3 Year Returns<\/span><\/td>\nER<\/span><\/td>\nYield%<\/span><\/td>\nP\/E Ratio<\/span><\/td>\n# of Holdings<\/span><\/td>\n<\/tr>\n
XLY<\/b><\/td>\nConsumer Discretionary Select Sector SPDR Fund<\/span><\/td>\n24.54<\/b><\/td>\n-2.91%<\/b><\/td>\n4.88%<\/b><\/td>\n18.30%<\/b><\/td>\n0.08%<\/b><\/td>\n0.8%<\/span><\/td>\n29.1<\/span><\/td>\n52<\/span><\/td>\n<\/tr>\n
VCR<\/b><\/td>\nVanguard Consumer Discretionary ETF<\/span><\/td>\n6.38<\/span><\/td>\n-3.52%<\/span><\/td>\n3.25%<\/span><\/td>\n17.79%<\/span><\/td>\n0.09%<\/span><\/td>\n0.7%<\/span><\/td>\n29.4<\/span><\/td>\n293<\/b><\/td>\n<\/tr>\n
FDIS<\/b><\/td>\nFidelity MSCI Consumer Discretionary Index ETF<\/span><\/td>\n1.93<\/span><\/td>\n-3.44%<\/span><\/td>\n3.32%<\/span><\/td>\n17.83%<\/span><\/td>\n0.08%<\/b><\/td>\n0.8%<\/span><\/td>\n26.0<\/span><\/td>\n254<\/span><\/td>\n<\/tr>\n
FXD<\/b><\/td>\nFirst Trust Consumer Discretionary AlphaDEX Fund<\/span><\/td>\n0.31<\/span><\/td>\n-4.63%<\/span><\/td>\n2.34%<\/span><\/td>\n12.06%<\/span><\/td>\n0.61%<\/span><\/td>\n0.9%<\/span><\/td>\n17.7<\/span><\/td>\n120<\/span><\/td>\n<\/tr>\n
RSPD<\/b><\/td>\nInvesco S&P 500 Equal Weight Consumer Discretionary ETF<\/span><\/td>\n0.22<\/span><\/td>\n-4.74%<\/span><\/td>\n4.07%<\/span><\/td>\n13.62%<\/span><\/td>\n0.40%<\/span><\/td>\n0.7%<\/span><\/td>\n22.0<\/span><\/td>\n51<\/span><\/td>\n<\/tr>\n
PEZ<\/b><\/td>\nInvesco Dorsey Wright Consumer Cyclicals Momentum ETF<\/span><\/td>\n0.05<\/span><\/td>\n-3.87%<\/span><\/td>\n-1.20%<\/span><\/td>\n14.51%<\/span><\/td>\n0.60%<\/span><\/td>\n0.1%<\/span><\/td>\n27.2<\/span><\/td>\n41<\/span><\/td>\n<\/tr>\n
IEDI<\/b><\/td>\n iShares U.S. Consumer Focused ETF<\/span><\/td>\n0.03<\/span><\/td>\n-4.23%<\/span><\/td>\n2.01%<\/span><\/td>\n15.01%<\/span><\/td>\n0.18%<\/span><\/td>\n0.9%<\/span><\/td>\n28.6<\/span><\/td>\n186<\/span><\/td>\n<\/tr>\n
PSCD<\/b><\/td>\nInvesco S&P SmallCap Consumer Discretionary ETF<\/span><\/td>\n0.02<\/span><\/td>\n-7.90%<\/span><\/td>\n-4.46%<\/span><\/td>\n10.04%<\/span><\/td>\n0.29%<\/span><\/td>\n0.9%<\/span><\/td>\n13.3<\/b><\/td>\n86<\/span><\/td>\n<\/tr>\n
VICE<\/b><\/td>\nAdvisorShares Vice ETF<\/span><\/td>\n0.01<\/span><\/td>\n-10.42%<\/span><\/td>\n2.38%<\/span><\/td>\n8.01%<\/span><\/td>\n0.99%<\/span><\/td>\n1.4%<\/b><\/td>\nN\/A<\/span><\/td>\n26<\/span><\/td>\n<\/tr>\n
BEDZ<\/b><\/td>\nAdvisorShares Hotel ETF<\/span><\/td>\n0.01<\/span><\/td>\n-6.43%<\/span><\/td>\n-3.41%<\/span><\/td>\n12.07%<\/span><\/td>\n0.99%<\/span><\/td>\n0.0%<\/span><\/td>\nN\/A<\/span><\/td>\n26<\/span><\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Current ValuEngine reports on all covered stocks and ETFS can be viewed<\/span> HERE<\/b><\/a><\/p>\n

The above table shows clearly that <\/span>XLY<\/b> is the proverbial 500-pound gorilla in assets under management (\u201cAUM\u201d) of this sector and with good reason.\u00a0 It has continuously outperformed the other nine ETFs in this sector while being tied for the lowest fee.\u00a0 Most of the other ETFs are broader with lower average market caps and considerably more stocks.\u00a0 Those that are not broader attempt to add value via smart beta techniques such as equal or fundamental or \u201csmart beta\u2019 weighting schemes. The purpose of \u201csmart beta\u201d is to use \u201ctime-tested\u201d methods of outperforming market-cap weighted index returns, referred to by smart beta proponents as \u201cdumb beta.\u201d\u00a0 Almost immediately after ETFs tied to such schemes gained popularity beginning in the late in the first decade of this century, mega-cap stocks that make up the market\u2019s leadership began outperforming other weighting schemes consistently between 2009 and 2025.\u00a0 <\/span>Fund-flow data shows that during this decade thus far, alternatively weighted and broader sector ETFs have been eclipsed in returns by the market-cap-weighted Select Sector SPDR in nearly every market sector.<\/b>\u00a0 Therefore, it may not come as a surprise that ValuEngine forecast model rates <\/span>XLY<\/b> a <\/span>4<\/b> (Buy) and all the other ETFs that we rate in the table are <\/span>3 <\/b>(Hold).\u00a0 Perhaps, at least since 2009, market-cap-weighting isn\u2019t such a dumb idea after all.<\/span><\/p>\n

Turning the focus to the top 10 stocks in <\/span>XLY, <\/b>all are rated at least <\/span>3 <\/b>(Hold) but four are ranked <\/span>4 <\/b>(Buy) or <\/span>5 <\/b>(Strong Buy) by our predictive model.\u00a0 The former group includes Amazon, Tesla, and Booking Holdings (<\/span>BKNG<\/b>).\u00a0 The Strong Buy stock is Doordash (<\/span>DASH<\/b>).\u00a0 There are actually several other stocks in the sector that ValuEngine rates <\/span>5 <\/b>and are also ranked as undervalued by our proprietary valuation model.\u00a0 This group includes: Wayfair (<\/span>W<\/b>); Roku (<\/span>ROKU); <\/b>BiliBili<\/span> (BILI); <\/b>Corsair Gaming<\/span> (CRSR); <\/b>Melco Resorts<\/span> (MLCO); <\/b>and Paramount Skydance (<\/span>PSKY<\/b>).\u00a0 One stock undervalued more than 40% and also ranked a <\/span>4 <\/b>according to our models is American Sports (<\/span>AS)<\/b>.\u00a0 Overall, 46 of the 242 companies ValuEngine covers and classifies as in the sector are rated either <\/span>4 <\/b>or <\/span>5.\u00a0 <\/b>This provides investors with many choices within Consumer Durables.<\/span><\/p>\n

Financial Advisory Services based on ValuEngine\u2019s research models: <\/b>www.ValuEngineCapital.com<\/b><\/a><\/h5>\n

The bottom line is that this <\/span>XLY <\/b>is an attractive sector ETF with many choices ranked at least hold and quite a few ranked <\/span>4 <\/b>or <\/span>5.\u00a0 <\/b>Beyond <\/span>XLY<\/b>, it seems more attractive to hunt for individual stocks in the sector that are not in the S&P 500 index than to invest in the broader or differently weighted ETFs in the sector.\u00a0 There are many choices available with more stocks that are rated either <\/span>4 <\/b>or <\/span>5 <\/b>and also undervalued compared to most other sectors. The warning here is that if or when the market starts repositioning itself for an expected recession, then stocks in the consumer durables sector will be among the first casualties to be sold. Until then, this continues to appear to be fertile ground.\u00a0\u00a0<\/span><\/p>\n

_____________________________________________________________________<\/b><\/p>\n

By Herbert Blank<\/b><\/h5>\n
Senior Quantitative Analyst, ValuEngine Inc ( <\/b>www.ValuEngine.com<\/b><\/a> )<\/b><\/h5>\n
support@ValuEngine.com \u00a0 \u00a0 \u00a0 \u00a0 (321) 325-0519<\/b><\/h5>\n
All of the over 4,200 stocks, 15 sector groups, over 250 industries, and 700 ETFs have been updated on<\/b> www.ValuEngine.com<\/b><\/a><\/h5>\n
Financial Advisory Services based on ValuEngine research available through<\/b> ValuEngine Capital Management, LLC<\/b><\/a><\/h5>\n
FREE Two-Week Trial to all 6,000 plus equities and ETFs covered by ValuEngine<\/b> HERE<\/b><\/a><\/h5>\n
Subscribers log in <\/b>HERE<\/b><\/a><\/h5>\n","protected":false},"excerpt":{"rendered":"

The Consumer Discretionary sector of the Global Industry Classification Standard (GICS) was established in 1999 to represent cyclical industries. It has undergone several significant revisions to reflect the evolution of the global economy, primarily in 2018 and 2023, as business models shifted.\u00a0 All research 5,000+ stocks and 700+ ETFs updated on www.ValuEngine.com When GICS was … Read more<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[130,1,39],"tags":[2792,2800,2786,2788,2796,2787,2793,2090,1108,319,2789,2797,2343,2794,1760,1761,1719,2782,2783,2259,1483,2790,2798,2522,2166,2791,2799,1510,1713,1911,1938,2287,2507,2784,1818,1699,1687,28,63,2408,2785,2795,2121,2085,2277,1849,2279,1887,1814,2707,1900,2276,2278],"_links":{"self":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/3655"}],"collection":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/comments?post=3655"}],"version-history":[{"count":1,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/3655\/revisions"}],"predecessor-version":[{"id":3656,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/3655\/revisions\/3656"}],"wp:attachment":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/media?parent=3655"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/categories?post=3655"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/tags?post=3655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}