Tesla's 18.97% Weight in XLY Explains Its 9-Point Lead Over VCR in 5 Years

A comparative analysis of two consumer discretionary ETFs reveals that the Consumer Discretionary Select Sector SPDR Fund (XLY) outperformed the Vanguard Consumer Discretionary ETF (VCR) by nine percentage points over the past five years. Analysts attribute this difference primarily to the relative weight of Tesla (TSLA) shares in each fund.

Details

Both XLY and VCR track market-cap-weighted indices of US consumer discretionary stocks. They both hold Amazon (AMZN) and Tesla as top holdings. However, the key difference lies in the weight assigned to each stock.

In XLY, Tesla has a weight of 18.97%, while in VCR the weight is significantly lower. This heavy Tesla weighting boosted XLY's performance during the period when Tesla shares rose sharply, leading to the fund's outperformance.

Context

Tesla is one of the most volatile stocks in the consumer discretionary sector and has seen substantial gains in recent years. Therefore, any fund that gives it a larger weight will benefit more from its rise but will also be more affected during downturns.

What This Means for Investors

Investors interested in the consumer discretionary sector should consider that the choice between XLY and VCR largely depends on their desired exposure to Tesla. While XLY may perform better during Tesla's rallies, VCR may be less volatile during declines.