Cash in on consumer trends in 2022.
After starting the year with slumping stock prices and concerns about interest rates, it may be tempting to run for cover and get defensive. But it’s important to remember that this dynamic is caused by two factors — inflation in both the price of products and U.S. wages, and an economy that is red hot after the recovery from COVID-19 shutdowns last year. In fact, the very reason the Federal Reserve is talking about rate increases is because we are seeing full employment and a strong enough U.S. economy to handle those hikes. While some stocks are undoubtedly due for a period of adjustment, don’t think that higher rates or general volatility is going to keep back consumer spending. And if you’re interested in playing this trend, these seven names are some of the best consumer exchange-traded funds to buy.
Consumer Discretionary Select Sector SPDR Fund (ticker: XLY)
You kind of have to start with XLY, as this $20 billion fund is the largest consumer discretionary ETF out there and the most direct way to play spending habits of U.S. households. Made up of more than 60 of the biggest names in the sector, you’ll find online retailer Amazon.com Inc. (AMZN), fast food giant McDonald’s Corp. (MCD), home improvement store Home Depot Inc. (HD) and sportswear icon Nike Inc. (NKE) among its top positions. If you’re looking to invest broadly in the places that American consumers are putting their hard-earned dollars, this SPDR sector fund is the obvious way to go. And the fact it comes with one of the lowest fee structures out there, with an annual expense ratio of 0.12% or $12 for every $10,000 invested, is the icing on the cake.
Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD)
One drawback of XLY, however, is that it’s very top-heavy with more than 20% of total assets in Amazon alone. If you’re bullish on the stock, that’s fine — but why not just buy shares directly instead of via an ETF? If instead you want a diversified play on consumers then consider this “equal weight” ETF. It also has about 60 total holdings, but no single position is worth more than 2% or so at present and RCD regularly balances to ensure no stock grows to become too large a portion of its holdings. That means smaller, low-profile plays like Rubbermaid manufacturer Newell Brands Inc. (NWL) and NAPA auto parts operator Genuine Parts Co. (GPC) get just as much sway as the obvious names in the space. For a broader play on spending, RCD has obvious benefits.
Consumer Staples Select Sector SPDR Fund (XLP)
Of course, with the volatility to kick off 2022 and the talk about higher interest rates and inflation eating into budgets, you may want to avoid discretionary plays and instead rely on staples. Goods like soap, packaged foods and household products see strong demand in any economic environment, and XLP is the largest and most liquid way to play this sector of the market. Like its cousin XLY, it is big — with $15 billion in assets — and cheap — the same 0.12% expense ratio annually — and is the leading fund to play this corner of Wall Street. Though just over 30 individual companies make up the fund at present, they are entrenched names including Procter & Gamble Co. (PG), PepsiCo Inc. (PEP) and Costco Wholesale Corp. (COST) so investors can still look for steady performance from these dominant brands, even if things get rough.
ETFMG Prime Mobile Payments ETF (IPAY)
Here’s a fun fact: Research firm Mordor Intelligence has estimated that the mobile payments market hit nearly $1.5 trillion in 2020, and will grow at about 25% per year through 2026. So why not play the companies that are facilitating this consumer activity instead of focusing on what those consumers are buying? That’s what IPAY offers, with exposure to the biggest digital payments companies on the planet. You’ll find companies like PayPal Holdings Inc. (PYPL) and online banking service provider Fiserv Inc. (FISV) alongside traditional “cashless” plays like American Express Co. (AXP) and Visa Inc. (V). While the fees on individual transactions may not be huge, put enough zeroes after all this consumer activity and it really adds up.
Amplify Online Retail ETF (IBUY)
A digital consumer ETF investment of a different flavor, IBUY is uniquely positioned to profit from consumer activity thanks to the long-term tail wind of e-commerce growth and the more recent online push prompted by COVID-19. Sure, Amplify isn’t as big an asset manager as other firms on here and IBUY only has about $400 million in assets at present. But it’s well diversified with about 80 total positions, and no single stock representing more about 3% of the fund at present. That means obvious plays like Amazon don’t squeeze out other stocks like travel portal Expedia Group Inc. (EXPE) or pet supply online retailer PetMed Express Inc. (PETS).
Roundhill Sports Betting & iGaming ETF (BETZ)
Keeping with the online spending theme, depending on where you live you’ve probably seen a lot of ads lately for online betting around the Super Bowl thanks to a general easing of regulations around the U.S. in recent years. As one of the largest dedicated gambling ETFs out there, this $250 million Roundhill consumer ETF holds 40 stocks that actually are laser-focused on gaming technology, sportsbooks and in-person gaming sites. Think stocks like casino and racetrack operator Penn National Gaming Inc. (PENN) or recently public DraftKings Inc. (DKNG), which dominates fantasy sports and related gaming. It may not be the most obvious category of consumer spending, but if U.S. households have money to burn, then you can bank on some of them gambling with it in 2022.
SPDR S&P Homebuilders ETF (XHB)
If you have moral qualms about betting on gambling stocks, then consider one of the pinnacles of American financial security — homeownership. Housing naturally involves a big upfront expense and is generally tied to consumer confidence. However, in recent years, home prices have marched ever higher, thanks to chronic supply deficits and strong demand. So if you’re an investor, why not cash in on this trend by buying XHB, which focuses on homebuilders cranking out new, high-margin homes for sale? With $2 billion under management, XHB is the de facto way to play the entirety of major U.S. builders, including D.R. Horton Inc. (DHI) and PulteGroup Inc. (PHM), as well as home improvement names including Home Depot. If you want to play housing, this consumer ETF is the way to go.
7 best consumer ETFs to buy now:
— Consumer Discretionary Select Sector SPDR Fund (XLY)
— Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD)
— Consumer Staples Select Sector SPDR Fund (XLP)
— ETFMG Prime Mobile Payments ETF (IPAY)
— Amplify Online Retail ETF (IBUY)
— Roundhill Sports Betting & iGaming ETF (BETZ)
— SPDR S&P Homebuilders ETF (XHB)
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7 Best Consumer and Retail ETFs to Buy Now originally appeared on usnews.com
Update 02/03/22: This story was published at an earlier date and has been updated with new information.
