Market Overview

For Discretionary ETFs, Amazon Is Kind Of A Big Deal

For Discretionary ETFs, Amazon Is Kind Of A Big Deal
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Shares of, Inc. (NASDAQ: AMZN) are up nearly 23 percent year-to-date, and it seems like hardly a day goes by without a sell-side analyst upgrading his or her price target on the stock to $900 or $1,000.

Of course, Amazon's ascent is good news for the funds with substantial weights in the stock, which is now the fourth-largest member of the S&P 500. Amazon benefiting funds includes actively managed funds as well as passive exchange-traded funds.

Amazon, Tech And ETFs

“Every technology-media-telecom (TMT) fund outperformed last quarter on account of AMZN having a 7–9 percent weight in their fund,” said Rareview Macro founded Neil Azous in a note out Thursday.

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It's suspected that data point is in reference to actively managed funds, but as was noted earlier, Amazon plays an important role in passively managed, market capitalization-weighted consumer discretionary ETFs, such as the Consumer Discretionary SPDR (ETF) (NYSE: XLY).

As of October 12, Amazon accounted for nearly 14.1 percent of XLY's weight, more than double the weight assigned to cable giant Comcast Corporation (NASDAQ: CMCSA), XLY's second-largest holding. As an aside, I'm either old, have been writing about ETFs for too long or both, because I can remember a time when Amazon was merely XLY's third-largest holding.

Kind Of A Big Deal ...

So it goes without saying that Amazon is really important to an ETF like XLY, the largest consumer discretionary ETF. How important? Let's look at the math. Forgive me in advance, and there is most certainly a way of doing this math, but I confess to not knowing how.

The simple math is, as stated earlier, Amazon is up nearly 23 percent this year, but XLY is up just 2.2 percent. So it is reasonable to assume that without Amazon, say it was classified as a technology stock, XLY and comparable consumer discretionary ETFs, would be lower this year.

Even with Amazon, six of XLY's top 10 holdings are in the red year-to-date. Add to that, four of XLY's top 10 holdings are four of the nine Dow stocks that are down this year and two of those four are two of the three Dow stocks down at least 10 percent this year.

Thank goodness for Amazon.

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