5 ETFs for Smart Holiday Season Investing

The holiday season started on a strong note with online and in-store shopping surging on early sales promotions from retailers. The skyrocketing stock market backed by the Trump bump, Fed rate cuts and AI boom has laid a strong foundation for the festive period amid difficult weather trends and a shorter holiday calendar. 

Consumer confidence is also rising. U.S. consumer sentiment grew to the highest level since April and represented the fifth consecutive monthly gain. The preliminary sentiment index climbed to 74 in December from 71.8 in November, according to the University of Michigan. The trend is likely to continue for the rest of the holiday season.

While several ETFs are poised for solid gains from this trend, SPDR S&P Retail ETF XRT, Amplify Online Retail ETF IBUY, ProShares Online Retail ETF ONLN, Amplify Digital Payments ETF IPAY and Invesco S&P SmallCap Consumer Discretionary ETF PSCD look to benefit the most from the annual shopping event.

Recap of the Thanksgiving Weekend

Americans spent considerably this year over the five-day Thanksgiving weekend, lured by free shipping offers, a limited sale or promotion, or a positive review that helped to convince most shoppers to finally make a purchase. According to the National Retail Federation (“NRF”), about 197 million shoppers engaged in in-store and online purchases over the Thanksgiving weekend (Thanksgiving Day through Cyber Monday). Though the number of shoppers is lower than 200 million in 2023, it exceeded NRF's initial estimates of 183.4 million (read: ETFs Set to Soar on Solid Thanksgiving Weekend Sales). 

Approximately 126 million people visited physical retail locations (up from 121.4 million in 2023), while 124.3 million opted for online shopping (down from 134.2 million). The top shopping destinations during Thanksgiving weekend were department stores (42%), online (42%), grocery stores and supermarkets (40%), clothing and accessories stores (37%) and discount stores (32%). 

On average, consumers spent $235 on holiday gifts during the five-day period, up $8 from last year. The top gifts included clothing and accessories (bought by 49% of those surveyed), toys (31%), gift cards (27%), food and candy (23%) and personal care or beauty items (23%). Black Friday remains the most popular shopping day for both in-store and online shopping. The NRF survey found 81.7 million consumers shopped in stores on Black Friday, up from 76.2 million last year and the highest level since the pandemic. Approximately 87.3 million shopped online, down slightly from 90.6 million in 2023. 

Per Adobe Analytics, online sales jumped 8.2% to a historic high of $41.1 billion during Cyber Week, indicating a robust start to the holiday shopping season. Cyber Monday was the biggest spending day, with sales climbing 7.3% to a record $13.3 billion as shoppers took advantage of bigger-than-expected discounts on various categories. The discounts peaked at 30.1% in electronics, 26.1% in toys, 23.2% in apparel, 21.8% in televisions and 21.5% in computers.

While Cyber Monday remained the season’s and the year’s biggest online shopping day, year-over-year growth was stronger on both Thanksgiving and Black Friday. Online spending rose 8.8% to $6.1 billion on Thanksgiving and 10.2% on Black Friday.

Solid Holiday Trends

The National Retail Federation (NRF) projects winter holiday spending to grow 2.5%-3.5% year over year for November and December to $979.5-$989 billion. Online shopping is expected to be a primary contributor, with sales projected to increase 8-9% to $295.1-$297.9 billion. This will be up from last year’s $273.3 billion online sales. 

Adobe expects U.S. online sales to hit $240.8 billion this holiday shopping season (Nov. 1 to Dec. 31), representing 8.4% year-over-year growth. Shopping on mobile devices will likely take the lead, with a record $128.1 billion and up 12.8% year over year. This would represent a 53.2% share of online spending this season (versus desktop shopping) and propel Buy Now, Pay Later (“BNPL”) services.

ETFs to Buy

SPDR S&P Retail ETF (XRT)

SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds well-diversified 78 stocks in its basket, with none making up for more than 2.3% share. SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in automotive retail, specialty stores, apparel retail, and broadline retail (read: Best-Performing ETF Areas of Last Week). 

SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $626 million and an average trading volume of 4.3 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Amplify Online Retail ETF (IBUY) 

Amplify Online Retail ETF offers global exposure to companies with significant revenues from the online retail business, traditional online retail, online travel, online marketplace and omni channel retail by tracking the EQM Online Retail Index. IBUY holds 77 stocks in its basket, with none accounting for more than 3.4% of assets. Amplify Online Retail ETF has the largest allocation in online retail at 40% and online marketplace at 37%. 

Amplify Online Retail ETF has attracted $187.1 million in its asset base and charges 65 bps in annual fees. IBUY trades in an average daily volume of 15,000 shares. 

ProShares Online Retail ETF (ONLN)

ProShares Online Retail ETF offers exposure to companies that principally sell online or through other non-store channels and then zeroes in on the companies reshaping the retail space. It tracks the ProShares Online Retail Index, holding 20 stocks in its basket. ONLN is highly concentrated on the top firm, while the other firms hold no more than 8.2% of the assets. 

ProShares Online Retail ETF has accumulated $93.7 million in its asset base and charges 58 bps in annual fees. ONLN trades in an average daily volume of 10,000 shares.

Amplify Digital Payments ETF (IPAY)

Amplify Digital Payments ETF provides access to global companies involved in payment-related products and/or services including card networks, infrastructure & software, processors and solutions. It follows the Nasdaq CTA Global Digital Payments Index and holds 36 stocks in its basket, with each making up for 6.4% of assets.

Amplify Digital Payments ETF has AUM of $345.6 million and charges 75 bps in annual fees. It trades in an average daily volume of 17,000 shares.

Invesco S&P SmallCap Consumer Discretionary ETF (PSCD) 

Invesco S&P SmallCap Consumer Discretionary ETF targets the small-cap segment of the broad consumer discretionary space by tracking the S&P SmallCap 600 Capped Consumer Discretionary Index. It holds 85 securities in its basket, with specialty retail taking the largest share at 27.7%, while household durables, and hotels, restaurants and leisure account for double-digit exposure each (read: 5 ETFs to Binge on This Thanksgiving Week). 

Invesco S&P SmallCap Consumer Discretionary ETF has attracted $27.9 million in AUM and charges 29 bps in annual fees. It trades in an average daily volume of about 1,000 shares and has a Zacks ETF Rank #3 with a High risk outlook.

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