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Nicholas Grove is a Morningstar journalist.

The S&P/ASX 200 Consumer Discretionary Index is up around 7.2 per cent year-to-date - hardly what can be called a poor performance.

But looking at the longer term, the index has fallen about 7.4 per cent over the past three years and over 14 per cent over the past five years.

And the outlook for this sector could be described as cloudy at best.

Only last week, upmarket department store operator David Jones (DJS) announced a 40 per cent fall in profit to $101.1 million for fiscal 2012, while stating that trading conditions "remain challenging".

Its rival Myer Holdings (MYR) recently announced a 14 per cent fall in profit, while at the same time also being unable to provide any specific sales or profit guidance due to the "tough retailing environment".

The country's biggest department store operator also announced it was set to close some of its stores on Sundays because it could no longer afford to pay penalty rates to staff.

On top of this lies general investor malaise, consumer de-leveraging, the European financial crisis, market volatility and massive changes in the way people consume just about everything - from news and information, to clothing, music, sporting goods and even car accessories.

Therefore, the question may be asked: Is the discretionary sector purely the playground of the short-term, speculative trader, or do these stocks actually have a place in conservative, long-term portfolios?

According to Morningstar's sector head of consumer, healthcare, industrials, tech and telecom, Peter Rae, the answer is "yes" - but you've got to keep a close eye on them.

"The cardinal rule is you can't just put them in your bottom drawer. You have to be monitoring them all the time because cycles can change quickly," Rae says.

"They're not purely for the speculator - I think there is a place in portfolios for them - investors just need to be aware that they can be cyclical and they need to balance them within the portfolio in that context and certainly not overload the portfolio.

"And there may be issues of timing as well in terms of buying those stocks. Investors may want to ride the cycle and then get rid of them after they've had a run. But there is some scope for them in a balanced portfolio."

When it comes to dividends, Rae says some discretionary stocks are sitting on pretty high yields at the moment - but caution is warranted and a lot depends on which sub-sector you are looking at.