Amazon.com, Inc. (AMZN) dominates the retail industry. The company sustains diversified businesses; shows relentless innovation, and posts consistent top-line growth. Moreover, Amazon enjoys persistent profitability, strong cash flow, a healthy balance sheet, and impressive stock appreciation.
On the other hand, today Amazon is trading at a trailing 12-month price-to-earnings (P/E) ratio of 84.06x. To analysts, this means that any surprise bad news could result in the stock's sudden free fall. The investment community has feared this potential downside—which has not yet come to fruition—of Amazon stock for many years.
What's An Investor To Do?
All of this can lead to investor confusion. You want to invest in Amazon, but don’t want to end up being a bag holder who entered the trade right before the fall. Instead of investing directly in AMZN, you can invest in an exchange-traded fund (ETF) that has the stock as one of its top holdings. Although this approach will not protect you in the event that AMZN crashes, it will help to limit any potential losses because you will be diversified.
Enter ETFs With Amazon Exposure
The five ETFs cited below, according to Amazon weighting, have AMZN as their top holding. If you’re interested in taking a diversified investing approach to this stock, then it might be worth exploring these funds as an alternative to buying individual shares of AMZN. As with any investment, you should consider the facts and figures of each ETF thoroughly to determine the best fit for your investing goals.
1) Fidelity MSCI Consumer Discretionary Index ETF (FDIS)
- Amazon Weighting: 24.23%
- Issuer: Fidelity
- Tracks: Price and yield of the MSCI U.S. IMI Consumer Discretionary Index
- Inception: 10/21/13
- Expense Ratio: 0.08%
- Assets Under Management: $798.84M
- Average Daily Volume (45 days): $4.00M
- Average Spread: 0.05%
2) SPDR Consumer Discretionary Select Sector Fund (XLY)
- Amazon Weighting: 23.87%
- Issuer: State Street Global Advisors
- Tracks: Price and yield of the Consumer Discretionary Select Sector Index
- Inception: 12/16/98
- Expense Ratio: 0.13%
- Assets Under Management: $14.89B
- Average Daily Volume (45 days): $346.13M
- Average Spread: 0.01%
3) Vanguard Consumer Discretionary ETF (VCR)
- Amazon Weighting: 22.55%
- Issuer: Vanguard
- Tracks: Price and yield of the MSCI U.S. IMI/Consumer Discretionary 25/50
- Inception: 01/26/04
- Expense Ratio: 0.10%
- Assets Under Management: $3.14B
- Average Daily Volume (45 days): $8.96M
- Average Spread: 0.04%
4) VanEck Vectors Retail ETF (RTH)
- Amazon Weighting: 20.99%
- Issuer: Van Eck
- Tracks: Price and yield of Market Vectors U.S. Listed Retail 25 Index
- Inception: 05/02/01
- Expense Ratio: 0.35%
- Assets Under Management: $105.52M
- Average Daily Volume (45 days): $1.70M
- Average Spread: 0.04%
5) First Trust DJ Internet Index Fund (FDN)
- Amazon Weighting: 8.95%
- Tracks: Price and yield of Dow Jones Internet Composite Index
- Inception: 06/19/06
- Expense Ratio: 0.52%
- Assets Under Management: $7.98B
- Average Daily Volume (45 days): $42.60M
- Average Spread: 0.03%
Amazon is one of the strongest companies on the planet. It is healthy in every regard and continues to steal market share from its peers, sometimes even to the point of putting those competitors out of business. If you were to ignore the high P/E ratio and global economic risks involved with this AMZN, then it would be a no brainer. However, because these are important considerations with the stock, then investors who want exposure to it might consider a more diversified approach via one of the ETFs listed above.
Neither Dan Moskowitz nor Carla Tardi has any positions in AMZN, RTH, XLY, FDN, FDIS, or VCR.