Cash in on consumer spending trends.
As hopes of a vaccine have emerged in late 2020, the “stay at home trade” of e-commerce and tech stocks has faded as stocks that would benefit from fewer social distancing requirements have soared. As a result, the markets have seen a lot of volatility as consumer exchange-traded funds have moved in and out of favor based on Wall Street predictions. Whether investors think a vaccine will quickly result in a return to malls and amusement parks nationwide or whether they think a rough winter is on its way along with more at-home cooking rather than dining out, there is sure to be an appropriate consumer ETF to pick. The following nine flavors of consumer funds allow investors to play spending trends in different ways.
Consumer Discretionary Select Sector SPDR Fund (ticker: XLY)
Among the largest consumer-facing funds out there with nearly $18 billion in assets, this discretionary-focused ETF is made up of more than 60 of the biggest names in the sector, including retailer Amazon.com (AMZN), home improvement store Home Depot (HD) and sports apparel giant Nike (NKE). If you’re looking to invest broadly in the places that American consumers are spending their cash this holiday season, then the Consumer Discretionary Select Sector SPDR Fund is perhaps the most popular way to do so. XLY comes with a low annual expense ratio of 0.13%, or $13 for every $10,000 invested.
First Trust Consumer Discretionary AlphaDEX Fund (FXD)
Benchmarked to a proprietary, hand-picked index of consumer discretionary names, the First Trust Consumer Discretionary AlphaDEX Fund is a unique way to play this sector because it takes a more selective view of stocks based on both share price performance as well as financial metrics — including cash flow and return on assets. The result is a list of more than 100 names. Near the top, you might find some rather unusual picks that don’t surface in other funds, such as digital advertising platform Trade Desk (TTD), that many investors likely haven’t even heard of before. FXD’s expense ratio is a bit higher, at 0.63%.
SPDR S&P Retail ETF (XRT)
The SPDR S&P Retail ETF index fund is benchmarked to retail names, cutting out companies that may simply produce consumer goods and allowing investors to play the stores themselves. The list of more than 80 total holdings includes high-end department store Nordstrom (JWN), teen apparel giant Abercrombie & Fitch Co. (ANF) and video game merchant GameStop Corp. (GME), just to name a few. This subsector of the consumer industry allows direct exposure to U.S. spending trends. The fund has an expense ratio of 0.35%.
Amplify Online Retail ETF (IBUY)
Cutting out brick-and-mortar merchants, IBUY is the leading e-commerce ETF, with more than $1 billion in assets under management and a five-star rating from financial services firm Morningstar. It’s comprised of about 60 total holdings, but your typical names such as Amazon are currently behind other holdings, including online deals marketplace Groupon (GRPN) and ride-sharing app Lyft (LYFT). If you want to play digital consumer spending, this ETF is one of your best ways to do so. It comes with an expense ratio of 0.65%.
iShares Global Consumer Discretionary ETF (RXI)
Instead of narrowing the consumer space, the iShares Global Consumer Discretionary ETF broadens it to include discretionary stocks of all shapes and sizes. These include traditional mall retailers and e-commerce plays from around the world, not just those in the U.S. As a result, RXI includes a broad variety of names, including Japanese carmaker Toyota Motor Corp. (7203.T) and French luxury brand LVMH Moet Hennessy Louis Vuitton (MC.PA). The roughly 150 stocks held in the fund represent a global who’s who list of dominant consumer companies, giving investors easy exposure to spending trends in one consumer ETF. RXI has an expense ratio of 0.46%.
Vanguard Consumer Staples ETF (VDC)
The flip side of discretionary stocks are staples stocks. That’s what the $6 billion Vanguard Consumer Staples ETF offers, with close to 100 holdings that include dominant consumer staples companies such as soft drink giant Coca-Cola Co. (KO) and personal care giant Procter & Gamble Co. (PG) as well as the largest merchants in the space, including Walmart (WMT) and Costco Wholesale Corp. (COST). These stocks tend to perform well in any economic environment, as Americans continue to fill up their shopping carts with these staples brands regardless of broader unemployment or spending trends. VDC has an expense ratio of 0.1%.
iShares Global Consumer Staples ETF (KXI)
The iShares Global Consumer Staples ETF takes a similar approach to the prior Vanguard consumer staples ETF; however, KXI widens its strategy to include international names and not just U.S.-based companies. That said, these are surely brands investors already recognize — including Switzerland-based consumer giant Nestle SA (NESN.SW) and iconic French personal care company L’Oreal SA (OR.PA), just to name a few. Since these global brands are dominant in the U.S., it may make sense to ensure your portfolio has an international flavor in this consumer ETF. KXI comes with an expense ratio of 0.46%.
Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS)
Consumer staples stocks are inherently less risky than consumer discretionary stocks, as things like packaged food and soap are in demand regardless of family budget pressures. The Invesco S&P 500 Equal Weight Consumer Staples ETF focuses on this already solid sector in a way that reduces an investor’s risk even more by taking an “equal weight” approach. Specifically, RHS takes 30 or so consumer staples stocks in the S&P 500 and rebalances regularly to ensure no single position is ever worth much more than about 3% or so. This really helps spread risk around and reduce volatility over the long term. The fund has an expense ratio of 0.4%.
Invesco DWA Consumer Staples Momentum ETF (PSL)
Taking a very different approach to staples is the Invesco DWA Consumer Staples Momentum ETF that focuses on picks in the sector with the best momentum at present. Right now, those are storage giant Tupperware Brands Corp. (TUP) and energy drink giant Monster Beverage Corp. (MNST). The focused list of only 35 holdings at present is regularly updated to reflect those holdings with the highest relative strength to their peers — and thus, a better chance of outperformance. This consumer ETF is a decent alternative for investors who want to play consumer staples without getting locked in to sleepy, low-growth companies. PSL has an expense ratio of 0.6%.
Nine of the best consumer ETFs to buy now:
— Consumer Discretionary Select Sector SPDR Fund (XLY)
— First Trust Consumer Discretionary AlphaDEX Fund (FXD)
— SPDR S&P Retail ETF (XRT)
— Amplify Online Retail ETF (IBUY)
— iShares Global Consumer Discretionary ETF (RXI)
— Vanguard Consumer Staples ETF (VDC)
— iShares Global Consumer Staples ETF (KXI)
— Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS)
— Invesco DWA Consumer Staples Momentum ETF (PSL)
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Update 12/02/20: This story was published previously and has been updated with new information.