Despite the challenges caused by the pandemic, consumer stocks have a lot to offer in 2020. In fact, one of the best-performing stocks of the year is consumer staples giant Clorox Co. (CLX), which has soared about 53% year to date thanks to its popular disinfecting products. E-commerce giant Amazon.com (AMZN) has rocketed about 62% through people trying to maintain social distance by shopping onine. Even in this challenging environment, consumer stocks clearly have a lot to offer. If you'd rather not pick individual names, exchange-traded funds are a solid option to hedge your bet. Here are nine different consumer-focused ETFs to consider.
Vanguard Consumer Staples ETF
With $6 billion under management and a rock-bottom expense ratio of just 0.1%, or $10 a year for every $10,000 invested, the Vanguard Consumer Staples ETF (VDC) is a simple and effective way to play the safest consumer stocks out there via a diversified index fund. These include staples manufacturers like personal products giant Procter & Gamble Co. (PG), beverage giant Coca-Cola Co. (KO) and big-box retailer Walmart (WMT), just to name a few. If you're looking for broad exposure to the brands most consumers are buying, this ETF and its nearly 100 holdings have you covered.
Invesco S&P 500 Equal Weight Consumer Staples ETF
Consumer staples stocks are inherently lower risk than other investments because people will keep buying toothpaste, toilet paper and breakfast cereal no matter what the broader economic environment looks like. The Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS) reduces your risk even more by taking an "equal weight" approach to the consumer staples stocks in the S&P 500, with no single position worth more than about 3% at present and regular rebalancing to ensure the stocks are more or less on equal footing. This really helps spread your risk around and reduce volatility over the long term. The fund comes with an expense ratio of 0.4%.
Invesco DWA Consumer Staples Momentum ETF
Taking a different approach to staples is this Invesco fund (PSL) that focuses on picks in the sector with the best momentum at present. Right now, those include spices purveyor McCormick & Co. (MKC), Sam Adams brewer Boston Beer Co. (SAM) and Clorox. The focused list of fewer than 40 holdings is regularly updated to reflect those holdings with the highest relative strength to their peers – and thus, a better chance of outperformance. This is a good alternative for those folks who want to play consumer staples without getting locked in to sleepy, low-growth companies. Its expense ratio is 0.71%.
Consumer Discretionary Select Sector SPDR Fund
On the opposite side of the consumer sector from staples are discretionary stocks, including retailers like Home Depot (HD) and restaurants like McDonald's Corp. (MCD). And with nearly $14 billion in assets under management, the Consumer Discretionary Select Sector SPDR Fund (XLY) is the go-to way to play these kinds of investments. Keep in mind, however, that the more volatile nature of these consumer plays means they may rise faster when spending is strong but could decline faster if consumers start pinching pennies. XLY has an expense ratio of 0.13%.
Communication Services Select Sector SPDR Fund
In the age of the pandemic, communications-related stocks are a unique group of companies that may technically be in the discretionary category but are now more important than ever. Think internet giant Alphabet (GOOG), streaming company Netflix (NFLX) and video game publisher Electronic Arts (EA) that create must-have products for anyone trying to stay sane in an environment of social distancing. The Communication Services Select Sector SPDR Fund (XLC) wraps up about 30 similarly positioned companies like these to provide a unique consumer-focused vehicle in the midst of a global pandemic. The fund's expense ratio is 0.13%.
iShares U.S. Consumer Services ETF
Another way to divide up consumer stocks is to focus on service-related investments. This would include some of the previous communications plays like Netflix that don't deliver tangible products, but also restaurants like Starbucks Corp. (SBUX) or even Home Depot, which offers a wide variety of services like carpeting and window installation. Some picks such as travel services giant Booking Holdings (BKNG) may not be thriving right now, but if you believe we are moving toward reopening the U.S. economy, then many of these service plays could be the first to benefit from a post-pandemic resurgence. (IYC) has an expense ratio of 0.42%.
Amplify Online Retail ETF
The largest dedicated e-commerce ETF out there with more than $600 million under management, the Amplify Online Retail ETF (IBUY) takes a very different approach to consumer spending. Its holdings are less reliant on brick-and-mortar operations and instead must "obtain 70% or more of revenue from online or virtual sales," according to Amplify. That includes the obvious players like Amazon. Smaller and niche plays such as clothing merchant Stitch Fix (SFIX) and exercise equipment company Peloton Interactive (PTON), which debuted its initial public offering last year, can also be found in this fund. Collectively, its roughly 50 holdings represent a large share of online spending dollars. IBUY has an expense ratio of 0.65%.
VanEck Vectors Video Gaming and eSports ETF
If you really want to focus on one specific corner of online consumer spending, the VanEck Vectors Video Gaming and eSports ETF (ESPO) offers a direct play on video games and the emerging business of esports. Remember, investors who scoffed at video games a decade ago and called them "kid stuff" have been left behind in a big way as the industry has surged to roughly 2.5 billion gamers worldwide, spending a collective $150 billion last year. ESPO ties up the largest publicly traded names in this booming consumer business, including Nintendo Co. (NTDOY) and Activision Blizzard (ATVI), among others. ESPO's expense ratio is 0.55%.
Columbia Emerging Markets Consumer ETF
Speaking of worldwide sales trends, it's important to understand that U.S. consumers aren't the only moneymaking opportunity out there for investors. While the U.S. is indeed a powerful force, the collective might of emerging-markets consumers is just as impressive – and more importantly, it's growing considerably faster than the mature consumer sector in the U.S. The Columbia Emerging Markets Consumer ETF (ECON) is a nearly $200 million fund that allows easy access to this trend via top emerging-markets stocks such as China's Tencent Holdings (TCEHY) and Mumbai, India-listed Hindustan Unilever. The fund's expense ratio is 0.59%.
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