Consumer discretionary exchange-traded funds (ETFs) have been the most closely observed area of the U.S. market this year. Read on to learn the best consumer discretionary ETFs to buy.
Consumer discretionary ETFs invest in companies that sell non-essential goods and services. They profit from the full spectrum of consumer goods and services, whether they manufacture automobiles, recreational supplies, or durable household goods.
Some of the big companies in this sector include Nike Inc. (NKE), Home Depot Inc. (HD), and McDonald's Corp. (MCD).
These companies command high brand loyalty from both investors and customers. Consumer discretionary ETFs are a healthy investment option if you are looking for diverse exposure to the sector.
With 21 distinct ETFs available for trading in the United States market, consumer discretionary ETFs have total assets under management (AUM) of $581.45M. 0.60% is the average expense ratio.
Best consumer discretionary ETFs
To help you choose the best consumer discretionary ETFs, we have compiled the definitive list of the four best consumer discretionary ETFs of 2022. These funds own a sizable number of consumer stocks, if not hundreds, which enables you to diversify your investments while reducing risk.
Consumer Discretionary Select Sector SPDR Fund (XLY)
- Market value: $20 billion
- Expense ratio: 0.13%
- Inception date: Dec 16, 1988
The Consumer Discretionary Select Sector SPDR Fund (XLY) is the largest US-listed consumer discretionary ETF at $20 billion in assets. Additionally, it ranks among the 100 ETFs in America, giving inexperienced investors a sense of security. Like other SDR sector funds, XLY is cap-weighted, which means that the larger a company's market capitalization (or market value), the larger its position in the portfolio.
Among its top positions is fast food juggernaut McDonald's Corp. (MCD), home improvement retailer Home Depot Inc. (HD), sportswear icon Nike Inc. (NKE), and online retailer Amazon.com Inc. (AMZN), which is one of the more than 60 most prominent names in the industry. This SPDR sector fund is the obvious choice if you want to invest broadly in the sectors where American consumers are investing their hard-earned money. The good part is that it has one of the lowest cost structures available, with an annual expense ratio of 0.12%, or $12 for every $10,000 invested.
Proshares Online Retail ETF (ONLN)
- Market value: $809.1 Million
- Expense ratio: 0.58%
- Inception date: July 13, 2018
It's challenging to discuss consumer discretionary ETFs without mentioning Amazon, the leading business in the online sector. That goes twice for the ProShares Online Retail ETF (ONLN, $38.59), which invests in retailers that mainly sell online.
Moreover, the index's 26 holdings are spread across around 74 % of the United States and 21 % of China and their main focus is on developed markets.
The ETF invests in multi-cap growth firms engaged in online shopping and restructuring the retail industry.
Top three holdings of it includes: class A shares of Chewy Inc. (CHWY), an online retailer of pet food and other pet-related products; ADRs of Alibaba Group Holding Ltd. (BABA), a China-based multinational technology company focused on online financial services, e-commerce, and internet content services; and Amazon.com Inc. (AMZN), an international technology company focused on e-commerce, digital streaming, and cloud computing.
Why is e-commerce getting such attention? Because online sales presently make up around 10% of all retail sales worldwide, it is already a decent market, and experts predict that the market will double in only 11 years.
Amplify Online Retail ETF (IBUY)
- Market value: $1.2 billion
- Expense ratio: 0.65%
- Inception date: April20, 2016
IBUY, a different digital consumer ETF investment, is uniquely positioned to benefit from consumer activity because of the long-term tailwind of e-commerce growth and the more recent online push brought on by COVID-19.
The Amplify Online Retail ETF (IBUY) trails the EQM Online Retail Index, which is intended to provide exposure to a subset of travel websites and consumer discretionary retailers that derive at least 70% of their revenue from online sources.
About 64% of the fund's 58 holdings operate in the traditional retail sector, while 27% in online marketplaces and 9% in travel-related businesses.
Its three leading holdings are class A shares of Qurate Retail Inc. (QRTEA), a company whose subsidiaries operate in the video plus online commerce enterprises, class A shares of Stitch Fix Inc. (SFIX), an online platform for personal styling, and class A shares of Lyft Inc. (LYFT), a company that offers ride-hailing services.
Consumer Staples Select Sector SPDR Fund (XLP)
- Market value: $15 billion
- Expense ratio: 0.12%
- Inception date: Dec 16, 1998
Due to talk of higher interest rates and inflation eating into the budget, you might want to abstain from discretionary plays and instead rely on staples. In any current economy, there is a high demand for products like soap, packaged foods, and household goods.
The Consumer Staples Select Sector SPDR Fund (XLP), which is concentrated on companies in the consumer staples industry, gives investors exposure to a sector of the U.S. equities market that might do well in a recession. XLP is the biggest and most liquid way to invest in this market sector. It has a diversified approach, investing in a range of growth and value stocks from primarily large-cap companies.
Even though the fund now consists of just over 30 different companies, it is comprised of enduring brands like Procter & Gamble Co. (PG), PepsiCo Inc. (PEP), and Costco Wholesale Corp. (COST). So, investors can still expect consistent performance from these well-known brands even if things get tough.
Bottom line
Choose a sector exchange-traded fund (ETF) or index fund to diversify your exposure to consumer discretionary stocks rather than purchasing the shares of individual companies. For example, the Consumer Staples Select Sector SPDR Fund (XLP) offers exposure to the whole sector for a minimal expense ratio of 0.12%.
