Doubling Discretionary Stocks for Your Discretionary Dollars

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some consumer products stocks to your portfolio, the PowerShares Dynamic Consumer Discretionary ETF 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.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.65%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed rather well, beating the world market over the past three and five 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.

Why consumer discretionary?
Consumer-products companies can be compelling because our developed nation and many others are full of consumers with dollars in their pockets. Those offering staples such as shampoo and cheese are defensive, reacting less to market downturns. But purveyors of consumer discretionary items can be powerful performers, too, especially as economies emerge from slumps, as we're doing now.

More than a handful of consumer discretionary companies had strong performances over the past year. Homemaker PulteGroup soared 169%, partly on signs that our housing market is finally turning around. Pulte even posted a profit recently, and it's responding to a growing demand for bigger and fancier homes.

Home appliance and electronics retailer Conns surged 134%, partly on strong results. Its last quarter featured same-store sales up more than 12% and gross margins jumping as well. The company does a lot of in-house financing for customers, and its diverse offerings, which include furniture and mattresses, have protected it some from sluggishness in TV sales. Management has been upping its projections. Impressively, the company was founded way back in 1890!

Starz, formerly known as Liberty Media, gained 68%. It has been busy reorganizing itself and spinning off non-Starz-related operations, and it has also accumulated a controlling interest in Sirius XM Radio . Sirius has faced threats from automakers offering their own entertainment products, but they're still offering Sirius radio as well. Starz, meanwhile, has been enjoying growing subscribership, and some speculate that it may end up acquired.

Limited Brands , up 17%, sports names such as Victoria's Secret, Bath & Body Works, Barn Candle, La Senza, Henri Bendel, and more. Its latest same-store sales numbers were up 3%, not meeting expectations, but it does offer a 2.1% dividend yield.

The big picture
Demand for consumer discretionary products isn't going 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.

Even though Sirius XM is one of the market's biggest winners since bottoming out three years ago, there is still some healthy upside to be had if things go right for it -- and plenty of room for it to fall if things don't. Read all about Sirius in our brand-new premium report. To get started, just click here now.

The article Doubling Discretionary Stocks for Your Discretionary Dollars originally appeared on Fool.com.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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