Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the world's economies to recover in the coming years and consumers to loosen their purse strings for discretionary purchases, the Consumer Discretionary Select Sector SPDR ETF (NYSE: XLY ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a very low 0.18%.
This ETF has performed rather well, topping the world market over the past three, five, and 10 years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 7%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
More than a handful of consumer-discretionary companies had strong performances over the past year. Carnival Cruise Lines (NYSE: CCL ) , for example, surged 23%. It's highly influenced by the price of fuel, as it has not hedged and locked in prices for most of its fuel needs. That can help it if fuel prices drop, but hurt if they rise. Carnival took a hit in business and in its stock price early this year due to an accident, but it has been recovering and expects 2013 to be stronger than 2012. The ultimate cost of accident-related litigation remains unknown, though.
priceline.com (Nasdaq: PCLN ) , up 17%, has been experiencing strong growth internationally, thanks in part to some savvy acquisitions. And growth in Asia and the U.S. is making up for a big slowdown in Europe. The company's earnings and revenue have been experiencing steep -- and accelerating -- growth rates, 100% and 41%, respectively, although some think it has risen too quickly lately. Others, though, think it has plenty of room to run.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Ford (NYSE: F ) , for example, gained just 2%, as its fleet sales took a hit this year. Trouble in Europe has also put pressure on the company. Still, its future looks bright, as it develops promising new models and invests aggressively in faster-growing economies abroad. In China, Ford is now planning to sell luxury Lincolns, and it's also offering six models in South Korea. In the U.S., Ford is planning to hire some 1,200 additional workers in the Detroit area.
Johnson Controls (NYSE: JCI ) , down 2%, may not be a household name, but it has been supplying the auto industry for a long time. The company has suffered from weak battery sales lately, as Americans have been hanging on to cars longer before buying new ones. A weak euro and strong competition has also hurt it. It, too, is broadening its reach in China, and it's also developing hybrid batteries and expanding its capacity. The company sports a dividend yield of about 2.6%, and has been paying dividends since 1887!
The big picture
Demand for discretionary goods and services may be cyclical, but it isn't likely to go away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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