The 3 Best Consumer Discretionary ETFs to Buy for Long-Term Growth

Mar. 15, 2023, 02:31 PM

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Exchange-traded funds (ETFs) can play a key role in helping you build a diversified portfolio. ETFs provide exposure to dozens of stocks in a sector or index. But like any asset class, some ETFs are better than others. In this article, we’ll look at some of the best consumer discretionary ETFs to buy for long-term investors. 

The consumer discretionary sector is made up of companies that produce “nice to have” but not “must have” products. Not surprisingly, it was one of the worst performing sectors in 2022. With inflation remaining at 40-year highs and interest rates rising sharply, consumers felt the pinch. And those who may have had discretionary income to spend shifted from buying things to buying experiences, especially vacations.  

Early in 2023, travel demand is still strong. But the outlook for consumer discretionary stocks is unclear. The pace and direction of both inflation and interest rates, along with the resilience of American consumer, will certainly be factors.

On the other hand, some analysts believe that the valuations of a portion of the  stocks in this sector are now too low. But instead of trying to pick the right stocks, you can invest in one of the best consumer discretionary ETFs and position yourself well to benefit from the sector’s long-term growth.  

XLY Consumer Discretionary Select $140 FDIS Fidelity MSCI Consumer Discretionary $61.50 PSCD Invesco S&P Smallcap Consumer Discretionary $85.43

Consumer Discretionary Select Sector SPDR Fund (XLY)

Picture of empty store shelves in a Bed Bath Beyond store on Jan 11 2023
Source: Photo by Thomas Yeung,

To illustrate just how bad things got for the consumer discretionary sector, the S&P 500 index was down 19% in 2022. The Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY) was down 36%, nearly double the decline of the S&P 500. That’s not surprising considering that, as of the end of last year,  the fund’s three largest holdings were Amazon (NASDAQ:AMZN), Tesla (NASDAQ:TSLA) and Home Depot (NYSE:HD).  

So far in 2023, XLY stock is up 9%. That’s a nod to the composition of the 56 stocks in the fund. Many of these companies are established, blue-chip companies which have been getting more attention from investors  amid their flight to quality and safety.  

Another reason to consider the XLY fund is that it has $13.9 billion of assets under management which makes it one of the Street’s largest ETFs. The combination of size and exposure to a portfolio of solid blue-chip stocks makes it a solid choice.   

Fidelity MSCI Consumer Discretionary Index ETF (FDIS) 

Blocks that spell out ETF in front of jar with money and change.
Source: SHUN_J / Shutterstock

A  key word that I might use to describe the Fidelity MSCI Consumer Discretionary Index ETF (NYSEARCA:FDIS) is balanced. As of this writing, the fund has an impressive 311 holdings. And while many of the names that it holds are large-cap stocks, the fund also owns mid-cap and even small-cap holdings. 

Like the XLY, Amazon is the largest holding of FDIS, accounting for almost a quarter of the fund’s assets. The fund, which currently has just over $1 billion of assets under management.  tracks the MSCI USA IMI Consumer Discretionary Index

And if you need another reason to put FDIS stock on your list of the best consumer discretionary ETFs, consider the fund’s 0.8% net expense ratio. That means that when you do start racking up  long-term gains, you’ll be able to keep more of them.  

Invesco S&P SmallCap Consumer Discretionary ETF (PSCD) 

Illustration of an ETF in multiple sectors.
Source: SWKStock / Shutterstock

Small-cap stocks historically outperform the broader market when a bear-market reverses. I’m not saying that we’re close to the end of this bear market. But when it does end, small-cap stocks are likely to lead the way. That’s a key reason that I wanted to include the Invesco S&P SmallCap Consumer Discretionary ETF (NASDAQ:PSCD) on this list of best consumer discretionary ETFs.

The fund tracks the S&P SmallCap 600 Capped Consumer Discretionary Index.  PSCD owns only 86 stocks. But one of the benefits of this fund is that no single stock accounts for more than 3.8% of the fund’s total holdings. As a result, the risk posed by the fund is relatively low, considering its focus on small-cap names.  

Its total expense ratio is 0.30%, which is still considered low for many funds.  

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines. 

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.

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