Consumer stocks seen losing grip as Canadians tighten belts

Consumer stocks have been the biggest winners on Canada’s struggling stock market this year thanks to an incongruous mix of companies, but the sector’s outperformance looks set to wane along with the housing market.

The consumer discretionary index may be one of the oddest collections of stocks on the S&P/TSX Composite Index, which is divided into 11 sectors. It includes retailers that fit neatly into the category like

and stocks but also auto-parts like

that might belong better with their industrial peers and cable companies like that would seem more at home in the telecom index.

“The mix isn’t necessarily intuitive,” said Craig Fehr, Canadian investment strategist at Edward Jones & Co. “I think the breadth within that sector as it’s represented in the TSX is wider than might be assumed at first blush.”

That diversity has been the sector’s strength this year. It rose 8.5 per cent in the year through Tuesday, outpacing all other sectors on the S&P/TSX, which was down 1.3 per cent. Two of the sector’s 10 best-performing stocks,

and Quebecor, are telecom companies and two others make auto parts:

and The sector’s received a boost from low interest rates, a weak loonie, a strong housing market and significant job gains, all of which have stimulated retail sales and consumer confidence, said Cavan Yie, portfolio manager at who owns shares in and among the $6 billion he manages. New players and

have also sparked interest following high-profile initial public offerings, though they haven’t yet been added to the index.

“There’s been a sector rotation into the consumer space,” said Ungad Chadda, president of capital formation for equity capital markets at TMX Group Ltd.