Everyone Wants Cheap Tech, Consumer Discretionary ETFs Have It

(Bloomberg) -- High flying tech stocks have continued to defy gravity this year, and investors who want exposure without the hefty price tag of buying the shares are turning to a new strategy -- consumer discretionary exchange-traded funds.

The Vanguard Consumer Discretionary ETF, ticker VCR, took in $115 million last week, at the same time investors poured $402 million into State Street’s Consumer Discretionary Select Sector SPDR Fund, ticker XLY. Combined, the two saw the largest inflows for a single week since 2015.

“It’s the tech part of the discretionary that did well,” Paul Nolte, a portfolio manager at Kingsview Asset Management in Chicago, said by phone. “And it’s part of the driver for big flows.”

Consumer discretionary is the second-best performing sector in the S&P 500 Index so far this year, following technology. It’s a diverse group that includes entertainment, cars, clothes, restaurants, hotels and other leisure companies. The winners this year have been Netflix Inc. and Amazon.com Inc. as well as Internet travel stocks like Booking Holdings Inc. and TripAdvisor Inc. Losers have been traditional retailers such as L Brands Inc., Signet Jewelers Ltd. and Dollar Tree Inc.

Amazon is the top holding in XLY and VCR, with Netflix among the top 10 in both funds. Internet companies comprise 22 percent of the Vanguard ETF and 30 percent of the State Street one.

Buyers of these funds may want to invest in consumer spending but limit exposure to old-school retail, as bricks-and-mortar stores face continuing pressure from online competitors. Both are up more than 6 percent so far this year, while the S&P Retail Select Industry Index is little changed.

“If I’m looking into buying Amazon, I’m going to start taking a look and doing research on the ETFs that hold Amazon in a large percentage -- that’s the way to do it,” Nolte said. “It’s the 800 pound gorilla. They are killing an awful lot of other parts of industries in retail so people say, ‘We need to own this.’”

To contact the reporters on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net, Heather Burke in London at hburke2@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Eric J. Weiner, Joanna Ossinger

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