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Sector ETF Picks For Communications, Consumer Staple, Discretionary Stocks

By (Tezcan Gecgil/ )ETFsDec 21, 2020 05:27AM ET
Sector ETF Picks For Communications, Consumer Staple, Discretionary Stocks
By (Tezcan Gecgil/ )   |  Dec 21, 2020 05:27AM ET
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The S&P 500 index, which measures the stock performance of the largest publicly-traded 500 companies in the US, is up over 14% so far in 2020 with a market cap over $30 trillion.

A sizeable portion of this year’s gains have come since the end of October. The main catalysts: positive vaccine news as well as a clear US Presidential election result.

Investors can gain exposure to the entire S&P 500 index via ETFs like the SPDR S&P 500 Fund (NYSE:SPY). They can also opt to invest in individual sectors via ETFs geared to those with that preference.

SPY Weekly Chart
SPY Weekly Chart

The 500 companies in the S&P 500 index are currently divided into 11 sectors. In 1999, S&P Global and MSCI first partnered to classify companies into sectors, introducing the Global Industry Classification Standard (GICS®), and assigning “a company to a single business classification according to its principal business activity."

In this three-part series of articles, which we'll publish over the next few days, we will delve into ETFs offering access to these 11 sectors. Today's post will cover funds that focus on stocks in the Communication Services, Consumer Discretionary and Consumer Staples sectors:

1. Communication Services

The Communications Services sector encompasses a wide range of advertising, entertainment, social media and telecommunications companies. For access to a broad range of companies within the sector, investors should consider the Communication Services Select Sector SPDR Fund (NYSE:XLC).

XLC Chart
XLC Chart

XLC, which has 26 holdings, was first listed in June 2018. The top names in the fund comprise over 70% of net assets of $12.4 billion.

Among the leading businesses in the ETF are Facebook (NASDAQ:FB), Google's parent company Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Disney (NYSE:DIS, T-Mobile US (NASDAQ:TMUS), Comcast (NASDAQ:CMCSA), Activision Blizzard (NASDAQ:ATVI) and Netflix (NASDAQ:NFLX).

Many of these companies have become household names. Given the increased reliance on technology during the pandemic, shares of a large number of these companies have seen record highs in 2020.

Year-to-date (YTD), XLC is up over 25%; it hit an all-time high of $67.81 on Dec. 9. The fund's current price supports a dividend yield of 0.74%. Trailing P/E and P/B ratios are 23.95 and 3.44.

Two other exchange-traded funds in the sectors that could be of interest are the Vanguard Communication Services Index Fund ETF Shares (NYSE:VOX) and the Invesco S&P 500 Equal Weight Communication Services ETF (NYSE:EWCO).

2. Consumer Discretionary

Consumer Discretionary businesses tend to be the most sensitive to economic cycles.

In the manufacturing side of the equation, we find automotive, household durable goods, textiles and leisure equipment. The sector is also made up of leisure services, such as hotels, restaurants, cinemas, as well as consumer retailers.

The Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY) gives exposure to such stocks.

XLY Daily Chart
XLY Daily Chart

XLY, which has 61 holdings, tracks the Consumer Discretionary Select Sector Index. The fund started trading in December 1998 and currently has over $21.2 million under management. (NASDAQ:AMZN), Home Depot (NYSE:HD), Nike (NYSE:NKE), McDonald's (NYSE:MCD), Starbucks (NASDAQ:SBUX), Lowe's (NYSE:LOW), Booking (NASDAQ:BKNG) and Target (NYSE:TGT) head the list firms in the ETF. The top names make up over 65% of the fund.

Since the start of the year, XLY has returned over 26% and hit a record high of $161.13 on Dec. 18. The fund's current dividend yield stands at 1.15%. Trailing P/E and P/B ratios are 20.87 and 7.41.

Two other attractive funds focusing on the sector: Vanguard Consumer Discretionary Index Fund ETF Shares (NYSE:VCR) and the Fidelity MSCI Consumer Discretionary Index ETF (NYSE:FDIS).

3. Consumer Staples

Consumer Staples, or necessities, includes such segments as food and beverage, personal hygiene and health product companies.

The Consumer Staples Select Sector SPDR Fund (NYSE:XLP) provides exposure to a wide range of businesses in the sector ranging from manufacturers and retailers of food, beverages, household and personal items and tobacco.

XLP Chart
XLP Chart

XLP, which has 32 holdings, tracks the Consumer Staples Select Sector Index. The fund was launched in December 1998 and currently has $13.5 billion in assets.

Leading names in the fund include Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), Walmart (NYSE:WMT), PepsiCo (NASDAQ:PEP), Costco Wholesale (NASDAQ:COST), Mondelez International (NASDAQ:MDLZ) and Philip Morris International (NYSE:PM). The top ten stocks comprise over 70% of the fund’s assets.

YTD, the fund has returned close to 8% and saw an all-time high of $68.18 Nov. 16. XLP’s current dividend yield is 2.94%. Trailing P/E and P/B ratios are 21.64 and 5.77.

Finally, two other ETFs that could be of interest to those following the sector are the Vanguard Consumer Staples Index Fund ETF Shares (NYSE:VDC) and the iShares Global Consumer Staples ETF (NYSE:KXI).

Sector ETF Picks For Communications, Consumer Staple, Discretionary Stocks

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Sector ETF Picks For Communications, Consumer Staple, Discretionary Stocks

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