Want to position for an Amazon rebound without buying the stock? These ETFs can help.
Shares of Amazon (AMZN 0.39%) are mired in a slump, which was exacerbated when the company told investors last week that it plans $200 billion in artificial intelligence (AI) investments this year. That revelation stoked a significant intraday plunge in the stock on Feb. 6; and for the month ended Feb. 10, Amazon shares are off 16.5%. That’s not far off the 20% decline that defines a bear market.
Compounding those woes are concerns about how the company will pay for that AI spending, including talk that those expenditures could push it into cash-flow-negative territory.
Making matters still worse is Amazon’s longer-range performance. For the five years ended Feb. 10, the stock is up just 25.3%. That’s not a loss, but it feels like one when measured against the much bigger returns of the Nasdaq-100 and the S&P 500.
If Amazon bounces back, these ETFs can generate some upside, too. Image source: Getty Images.
On the other hand, investors should be careful before penning obituaries on this stock. AI could be a catalyst for Amazon Web Services (AWS). The company’s advertising business grew 22% year over year in the fourth quarter and is seen by some market observers as an underappreciated growth driver.
The point is, it’s not out of the realm of possibility that the company will rebound. Investors who don’t want to make an all-in bet on the stock but want some exposure to that resurgence might consider the following exchange-traded funds (ETFs).
A cost-effective Amazon proxy
Nearly 480 ETFs feature Amazon among their top 15 holdings, and just five have larger allocations to the stock than does the Vanguard Consumer Discretionary ETF (VCR +0.11%). This fund allocates 21.2% to the company, making it a valid proxy for the stock. Actually, it’s a two-horse show because Tesla accounts for another 18.1% of its roster.
Vanguard World Fund – Vanguard Consumer Discretionary ETF
Today’s Change
(0.11%) $0.43
Current Price
$383.87
Key Data Points
Day’s Range
$381.49 – $386.82
52wk Range
$285.13 – $414.28
Volume
50K
For investors who want exposure to both stocks without having to choose between them, this Vanguard ETF makes a lot of sense. It’s also practical for buy-and-hold market participants because its annual expense ratio is just 0.09%, or $9 on a $10,000 investment. That’s well below the category average of 0.76%.
A pure retail play
For all the talk about advertising, AI, and AWS, Amazon remains the dominant name in online retail and one of the largest retailers of any stripe. So it’s not surprising that the VanEck Retail ETF‘s (RTH +0.85%) 17.2% Amazon weight is exceeded by only a small number of ETFs.
The VanEck fund is slightly less concentrated at the top than the aforementioned Vanguard ETF, as three stocks account for about 39% of the portfolio: Amazon, Walmart, and Costco Wholesale.
But despite the hefty weight to Amazon, this VanEck fund isn’t a dedicated consumer discretionary ETF. Stocks from that sector represent 53.9% of the portfolio, while consumer staples businesses account for 29%. Healthcare and industrial stocks make up more than 17% of this retail ETF, but it’s still a strong way — if not a unique one — to position for an Amazon rebound.
One for the risk takers
Remember the post-earnings drubbing Amazon endured last week? The Direxion Daily AMZN Bull 2x Shares ETF (AMZU 0.90%) really got the bad end of that deal because, as its name implies, it attempts to deliver 200% of Amazon’s daily performance. So when markets don’t like what the company has to say, this fund is going to be punished.
Direxion Shares ETF Trust – Direxion Daily Amzn Bull 2x Shares
Today’s Change
(-0.90%) $-0.23
Current Price
$25.23
Key Data Points
Day’s Range
$24.84 – $25.83
52wk Range
$21.28 – $46.88
Volume
4.6M
That’s also a reminder that when Amazon shares are rallying, this ETF’s gains will be amplified, but only over short holding periods, such as a day or a few days.
That disclaimer is crucial because, unlike the other ETFs mentioned here or Amazon itself, the Direxion fund is NOT suitable for buy-and-hold investors — no leveraged ETF is. Traders with a gambler’s spirit and a high risk tolerance can use this fund around events such as earnings releases, new product announcements, and the like — but that’s all.