But how can investors take advantage of this spending behavior? That's where consumer discretionary ETFs come in. By investing in a diversified portfolio of companies that cater to our wants rather than our needs, these exchange-traded funds (ETFs) provide exposure to a crucial market sector.
This article will explore the best consumer discretionary ETFs available and why they might be valuable to your investment portfolio.
What Are Consumer Discretionary ETFs?
Consumer discretionary ETFs are exchange-traded funds that invest in companies that provide goods and services that are not considered essential for daily living but cater to consumers' wants and desires. These companies include those in the retail, media, entertainment, leisure and hospitality industries.
An ETF is a type of pooled investment security, or a basket of securities, that typically tracks a particular index.
Investing in consumer discretionary ETFs can provide exposure to a range of companies in this sector, which can help to diversify an investment portfolio. Additionally, as consumer spending habits change over time, these ETF consumer discretionary types can be a way to capitalize on trends in the market.
How to Invest in the Consumer Discretionary Sector with ETFs
Investing in an ETF for consumer discretionary can significantly capitalize on consumer spending habits and trends. To start investing in this sector, it is essential that you research and understand the different types of companies included in this sector, such as those in the retail, media, entertainment, leisure and hospitality industries.
You can use tools like MarketBeat’s ETF Screener once you understand how to use the screener. Afterward, investors can choose a consumer discretionary ETF that aligns with their investment goals and preferences. For instance, your ETF strategy might be to find the best monthly dividend stocks and ETFs. Some factors to consider when selecting an ETF that meets your strategic goals is to include the expense ratio, historical performance and the specific companies and industries in each ETF. It is important to note that investing in consumer discretionary ETFs also involves risks, such as economic downturns or changes in consumer behavior, so it is always a good idea to consult with a financial advisor before making any investment decisions.
10 Best Consumer Discretionary ETFs
As consumers continue to drive economic growth, the consumer discretionary sector has become attractive for investors seeking to capitalize on consumer spending trends. Investors can gain exposure to this sector through a variety of exchange-traded funds (ETFs), each with its own investment strategy and focus. By investing in consumer discretionary ETFs, investors can benefit from the potential for growth and returns generated by the sector. To help get you started, we have compiled a list of some of the top ETFs for consumer discretionary spending.
1. Vanguard Consumer Discretionary ETF
The Vanguard Consumer Discretionary ETF NYSEARCA: VCR is an exchange-traded fund that invests in companies in the consumer discretionary sector of the economy. The VCR ETF seeks to track the performance of the MSCI US Investable Market Consumer Discretionary 25/50 Index, which includes large, mid-sized and small U.S. companies in the consumer discretionary sector.
The fund provides investors with a diversified portfolio of consumer discretionary companies at a low cost, making it an attractive option for those seeking broad-based exposure to the sector. Its expense ratio is 0.10%, with an average daily volume of around 93,000 shares. The fund has assets under management (AUM) of approximately $4 billion spread across about 311 different holdings.
2. Amplify Online Retail ETF
The Amplify Online Retail ETF NYSEARCA: IBUY seeks to track the performance of the EQM Online Retail Index. The EQM Online Retail Index is a stock market index that measures the performance of companies engaged primarily in an online retail business. The index includes companies with a market capitalization of at least $250 million and an average daily trading volume of at least $1 million.
The index comprises companies generating at least 70% of their revenue from online consumer goods and services sales. The EQM Online Retail Index is designed to expose investors to the growing online retail industry, which has become increasingly popular with the rise of e-commerce and internet shopping. Funds that track the performance of the EQM Online Retail Index aim to replicate the index's performance by investing in the same companies that are included in the index. Its expense ratio is 0.65%, with an average daily volume of around 54,000 shares. The fund has assets under management (AUM) of approximately $190 million spread across about 60 different holdings.
3. Invesco S&P 500 Equal Weight Consumer Discretionary ETF
The Invesco S&P 500 Equal Weight Consumer Discretionary ETF NYSEARCA: RCD ETF seeks to track the performance of the S&P 500 Equal Weight Consumer Discretionary Index. The RCD ETF is designed to perform similarly to the S&P 500 Equal Weight Consumer Discretionary Index, which includes companies in the consumer discretionary sector that are part of the S&P 500 Index.
Unlike the S&P 500 Index, which is market capitalization-weighted, this index gives equal weight to each company in the index. Therefore, the RCD ETF invests in the same consumer discretionary companies as the index, with an identical allocation to each company, aiming to replicate the index's performance. Its expense ratio is 0.40%, with an average daily volume of around 67,000 shares. The company keeps an average of about $602 million in assets under management, spread across approximately 60 different holdings.
4. Fidelity MSCI Consumer Discretionary Index ETF
The Fidelity MSCI Consumer Discretionary Index ETF NYSEARCA: FDIS seeks to track the performance of the MSCI USA IMI Consumer Discretionary Index, which includes consumer discretionary companies in the MSCI USA IMI Index. The MSCI USA Investable Market Index (IMI) is a stock market index that measures the performance of the U.S. equity market, representing the broadest index of U.S. companies. The index includes large, mid, small and micro-cap companies, covering about 99% of the total market capitalization of the U.S. equity market.
The IMI index is a market capitalization-weighted index, meaning that larger companies significantly impact the index's performance. The index is widely used as a benchmark by investors and fund managers who invest in U.S. equities. Funds that track the performance of the MSCI USA IMI Index aim to provide investors with diversified exposure to the U.S. equity market. Its expense ratio is 0.08% and it has an average daily volume of around 77,000 shares.
The fund launched in October of 2013 and has an average of $990 million in assets under management (AUM) spread across 304 holdings. However, the top 10 holdings comprise approximately 60% of the fund.
5. iShares U.S. Consumer Services ETF
The iShares U.S. Consumer Services ETF NYSEARCA: IYC ETF seeks to track the performance of the Dow Jones U.S. Consumer Services Index, which includes companies in the consumer services sector of the U.S. equity market. The consumer services sector is a category of companies that provide consumer services, such as retail, media, leisure and hospitality. The industry includes companies that sell goods and services directly to individuals and households, such as retailers, restaurants, hotels and entertainment companies.
It also includes companies that provide services to other companies, such as advertising agencies, credit card companies and travel agencies. The performance of the consumer services sector is closely tied to consumer spending patterns. It does well during periods of economic growth when consumers have more disposable income to spend on discretionary items.
The consumer services sector is often considered a leading indicator of the broader economy. Its expense ratio is 0.39%, with an average daily volume of around 89,000 shares. The fund was launched in June of 2000 and keeps an average of $680 million in assets under management (AUM), spread across 173 holdings.
6. Consumer Discretionary Select Sector SPDR Fund
The Consumer Discretionary Select Sector SPDR Fund NYSEARCA: XLY ETF seeks to track the performance of the Consumer Discretionary Select Sector Index. The Consumer Discretionary Select Sector is a sector of the S&P 500 Index that includes companies that sell non-essential goods and services such as automobiles, apparel, leisure and entertainment.
The sector represents companies susceptible to consumer spending patterns and tends to do well during periods of economic growth when consumers have more disposable income to spend on discretionary items. The Consumer Discretionary Select Sector is one of the 11 sectors of the S&P 500 Index. Investors and analysts widely follow it to measure the consumer discretionary industry's performance.
Its expense ratio is 0.10%, with an average daily volume of around 5.11 million shares. The fund was started in December 1998. It has an average of $13.4 billion of assets under management (AUM) spread across 57 holdings; however, it is important to note that the top 10 holdings comprise approximately 70% of the fund's assets.
7. VanEck Vectors Retail ETF
The VanEck Vectors Retail ETF NYSEARCA: RTH ETF seeks to track the performance of the MVIS US Listed Retail 25 Index. The MVIS US Listed Retail 25 Index is a stock market index that tracks the performance of the 25 most significant and most liquid U.S. listed companies in the retail industry. The index is maintained by MV Index Solutions (MVIS), a subsidiary of VanEck and is designed to provide investors with exposure to the retail sector of the U.S. equity market. The index uses a modified market capitalization weighting methodology, meaning that the largest companies have a higher weighting than smaller ones.
The MVIS US Listed Retail 25 Index includes companies from various retail sub-industries, such as general merchandisers, specialty retailers and internet retail. The index is reviewed quarterly to ensure it represents the U.S. retail industry's performance. Funds that track the MVIS US Listed Retail 25 Index aim to replicate the index's performance by investing in the same companies included in the index. Its expense ratio is 0.35%, with an average daily volume of around 5000 shares. The fund was started in December 2011 and has approximately $170 million in assets under management (AUM) spread across about 25 holdings.
8. First Trust Consumer Discretionary AlphaDex ETF
The First Trust Consumer Discretionary AlphaDex ETF NYSEARCA: FXD ETF seeks to track the performance of the StrataQuant Consumer Discretionary Index, which uses a proprietary selection process to identify consumer discretionary companies with good investment merit. The StrataQuant Consumer Discretionary Index is a stock market index created by the financial analytics firm Morningstar. The index uses a proprietary methodology to select and rank consumer discretionary companies based on factors such as revenue growth, profitability and valuation. The top-ranked companies are then weighted in the index using a modified equal-weighting scheme.
The StrataQuant Consumer Discretionary Index aims to expose investors to high-quality consumer discretionary companies likely to outperform their peers. The index includes companies that sell non-essential goods and services such as automobiles, apparel, leisure and entertainment. Funds that track the StrataQuant Consumer Discretionary Index aim to replicate the index's performance by investing in the same companies included in the index.
The StrataQuant Consumer Discretionary Index is one of several indexes created by Morningstar that use the StrataQuant methodology to rank and select companies based on various factors. Its expense ratio is 0.61%, with an average daily volume of around 91,000 shares. The fund was started in May of 2007 and has approximately $360 million in assets under management (AUM) spread across around 190 holdings.
9. iShares Global Consumer Discretionary ETF
The iShares Global Consumer Discretionary ETF NYSEARCA: RXI ETF seeks to track the performance of the S&P Global 1200 Consumer Discretionary Sector Index. The S&P Global 1200 Consumer Discretionary Sector Index is a stock market index that tracks the performance of the consumer discretionary sector of the global equity market. The index is maintained by S&P Dow Jones Indices, a leading provider of financial market indices and includes companies from various regions worldwide.
The index is designed to expose investors to the consumer discretionary sector's performance on a global scale. The companies included in the index are selected based on their market capitalization, liquidity and industry classification.
The S&P Global 1200 Consumer Discretionary Sector Index is a subset of the more significant S&P Global 1200 Index, including companies from all global equity market sectors. Funds that track the S&P Global 1200 Consumer Discretionary Sector Index aim to replicate the index's performance by investing in the same companies included in the index. Investors and analysts widely follow the index to measure the global consumer discretionary sector's performance. Its expense ratio is 0.40%, with an average daily volume of around 13,000 shares. The fund was started in June of 2008 and has approximately $265 million in assets under management (AUM) spread across 143 holdings.
10. SPDR S&P Retail ETF
The SPDR S&P Retail ETF NYSEARCA: XRT ETF seeks to track the performance of the S&P Retail Select Industry Index. The S&P Retail Select Industry Index is a stock market index that tracks the performance of companies in the United States retail industry. The index is maintained by S&P Dow Jones Indices and is a subset of the larger S&P Total Market Index, which includes all U.S. common equities.
The S&P Retail Select Industry Index includes companies that operate in various retail sub-industries, such as food and staples retailing, specialty retail and internet and direct marketing retail. Companies are selected for inclusion in the index based on their market capitalization, liquidity and classification in the retail sector. The S&P Retail Select Industry Index is a popular benchmark for investors and analysts interested in tracking the performance of the U.S. retail industry.
Funds that track the S&P Retail Select Industry Index aim to replicate the index's performance by investing in the same companies included in the index. Its expense ratio is 0.35%, with an average daily volume of around 5.7 million shares. The fund started in June of 2006 and has approximately $400 million in assets under management spread across 96 holdings. It is vital to note that the top 10 holdings comprise about 15% of the funds.
Consider Consumer Discretionary ETFs
Investing in consumer discretionary ETFs allows investors to diversify their portfolio with companies that operate in the retail, media and hospitality industries, among others. These ETFs enable investors to capitalize on the growth of consumer spending and trends in the industry.
After researching and analyzing the top 10 consumer discretionary ETFs available, it is clear that each fund has its unique approach and investment strategy. However, the key to investment success lies in selecting an ETF that aligns with your personal investment goals and risk tolerance.
You need to know ahead of time if you want the best dividend ETFs or if you want to focus on growth potential when considering consumer discretionary ETFs. By doing so, you can make an informed decision and potentially reap the benefits of investing in the consumer discretionary sector.
FAQs
This section will answer some commonly asked questions about investing in consumer discretionary ETFs. By addressing these questions, we hope to help you better understand the benefits and risks of these ETFs and how they can fit into a well-diversified investment portfolio. Whether new to investing or expanding your knowledge, this section will provide valuable insights into consumer discretionary ETFs.
What is an example of consumer discretionary?
Examples of consumer discretionary products and services include luxury goods, entertainment, travel, restaurants and consumer electronics. Essentially, people can buy anything with their discretionary income rather than using it for necessary expenses, such as rent or groceries.
What is the meaning of consumer discretionary?
Consumer discretionary is a term used to describe goods and services that are not considered essential for daily living but are desirable and provide pleasure or convenience. These are products and services that consumers are willing to spend money on when they have extra income available, rather than spending only on necessities such as food, housing and medical care. Economic factors such as employment levels, income growth and consumer confidence tend to influence consumer discretionary spending.
What are consumer discretionary companies?
Consumer discretionary companies produce goods and services that are not considered essential for daily living but are products on which consumers are willing to spend their discretionary income. Examples of consumer discretionary companies include retailers, restaurants, leisure and entertainment companies and luxury goods manufacturers.
These companies are often more sensitive to economic conditions, as consumers may reduce spending during economic uncertainty. However, during economic growth, consumer discretionary companies often see strong demand and growth in their businesses.
