SP500 sector ETF: XLP vs XLY

G

ggnn2020

XLP is for consumer staples sector includes companies that manufacture or sell products that are essential for living.

XLY is for companies that manufacture or sell products that aren't essential for living and are dependent on the disposable income of households.

But based on this definition, why would PM and MO belong to XLP, while HD and LOW in XLY? It seems to me HD and LOW are more essential than PM and MO?
 
Thanks for the explanation. That's a good one. :)

But I also see WMT and COST are in XLP, while AMZN and TGT in XLY. To me they are head-to-head competitors?

Curious why we need both XLP and XLY, instead of merging into a single Consumer sector. The market cap of XLP + XLY < XLK. So it's not because the imagined sector is too large?
 
Somebody with access to lots of information looks at the minute details of these businesses and then says ... "uh, ok this one goes here". I'm sure it's a toss-up in some cases, but there is more than meets the retail eye with regard to the machinations of these LARGE integrated businesses. There, how's that? Not quite as good as ggnn2020's response, I know.
 
ggnn2020 said:
But I also see WMT and COST are in XLP, while AMZN and TGT in XLY. To me they are head-to-head competitors?

Curious why we need both XLP and XLY, instead of merging into a single Consumer sector. The market cap of XLP + XLY < XLK. So it's not because the imagined sector is too large?
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I see Target as being more discretionary than staples. Comparing the Walmart and Target near me, every Walmart that I have been to has a fully grocery section. Target only got into groceries a few years back and their selection is more limited. Also, Walmart carries more essential items like guns, ammunition, and automotive parts while Target only has a very limited selection of motor oil. I'd say Walmart and Costco about 50% discretionary 50% staples. Target about 25% staples, 75% discretionary. Amazon is around 90% discretionary. So I think the weighting is appropriate. Also, just looking at stock performance, Amazon and Target have been much more volatile than Walmart so that might factor in too. People who buy XLP are looking for something stable that will weather a recession well. I recently added some XLP mostly as an inflation hedge and to park money somewhere. Like the dividend on it and it's good for selling options.
 
ggnn2020 said:
Thanks for the explanation. That's a good one. :)

But I also see WMT and COST are in XLP, while AMZN and TGT in XLY. To me they are head-to-head competitors?

Curious why we need both XLP and XLY, instead of merging into a single Consumer sector. The market cap of XLP + XLY < XLK. So it's not because the imagined sector is too large?
More...

WMT and COST revenue will mostly come from consumer staples. I'm sure S&P broke down their revenues to classify them properly.

There is a very good reason to keep them separate. XLP is a defensive sector that continues to do well during recessions. XLY does not because it contains discretionary items where people can postpone purchases.

Below is a table that shows leading and lagging sectors at different parts of the business cycle. It is not perfectly correlated and lead/lag can be significant because everybody tries to anticipate this cycle effect.

Note: XLP is Consumer Staples, XLK is Consumer Discretionary.

Whether we are in Early Cycle or Late Cycle would be a hot debate.


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xandman said:
There is a very good reason to keep them separate. XLP is a defensive sector that continues to do well during recessions. XLY does not because it contains discretionary items where people can postpone purchases.
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Agree. I also see XLP as being more inflation resistant than XLY as the table shows.
 
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