Investment management firm Vanguard has around 50 equity-focused exchange-traded funds (ETFs) with ultra-low expense ratios. These funds offer simple ways to invest in dozens or even thousands of stocks under a single ticker -- achieving diversification and catering to specific themes or interests.
There are Vanguard funds for growth, income, and value. There are also Vanguard funds based on each stock market sector.
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The Vanguard Consumer Discretionary ETF(NYSEMKT: VCR) is the second-worst-performing Vanguard ETF year to date -- behind only the Vanguard S&P Small-Cap 600 Value ETF.
Here's why the sector fund is down so much and why it's a good opportunity for long-term investors to consider buying now.
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A highly cyclical sector
The consumer discretionary sector is a double-edged sword. Low interest rates and economic expansion can encourage consumers to spend more, fueling growth across the sector. However, rising interest rates and fears of slowing growth or even a recession work in the opposite direction, straining earnings and potentially stock prices as well (as we are seeing in today's market).
Home improvement retailers like Home Depot and Lowe's, restaurants, brick-and-mortar and online retailers, cruise lines, and travel companies like Booking Holdings are all vulnerable to pullbacks in consumer spending. However, those companies aren't what is dragging down the sector.
Year to date, the Vanguard Consumer Discretionary ETF is down 18.3% at the time of this writing. Out of its top 10 holdings, only two are down more than the ETF, Amazon(NASDAQ: AMZN) and Tesla(NASDAQ: TSLA), illustrating the impact those two companies have on the fund. Combined, Amazon and Tesla make up over 35% of the fund -- with Amazon down over 21% year to date and Tesla down just over 41%.
However, it's not just Amazon and Tesla that have been nosediving. Hotels, resorts, and cruise lines make up 8.7% of the ETF. All of those industries, especially cruise lines, are vulnerable to economic cycles. Royal Caribbean Cruises, Carnival, and Norwegian Cruise Line are down 14%, 28%, and 36% year to date at the time of this writing.
McDonald's, one of the largest holdings in the fund, has held up well and is one of the best-performing components of the Dow Jones Industrial Average in 2025. But restaurants that focus less on value, like Starbucks and Chipotle Mexican Grill, are down big. Meanwhile, footwear and apparel companies like Nike and Lululemon Athletica have tumbled, down 24% and 32%, respectively, year to date.
The key takeaway is that the top two largest holdings in the ETF are contributing the bulk of the losses in the sector. However, what has made the sell-off in the consumer discretionary sector even worse is the significant decline across multiple companies in key industries. In fact, consumer discretionary is the worst-performing sector year to date -- down slightly more than technology. That may come as a surprise given the steep sell-off in tariff-sensitive big tech names like Apple and the semiconductor industry.
There is no denying that the consumer discretionary sector is one of the most vulnerable to economic cycles, geopolitical tensions, and tariff turmoil. So, short-term-minded investors may dump consumer discretionary companies in favor of other names. However, over the long term, the consumer discretionary sector is an excellent way to capitalize on the broader economy's growth.
In the two years from 2023 to the end of last year, the S&P 500 gained a whopping 53.2%. Just three sectors beat the index -- consumer discretionary with a 73.7% gain, technology with an 86.7% surge, and the communications services sector more than doubled thanks to outsize gains from top holdings like Meta Platforms, Alphabet, and Netflix.
The consumer discretionary sector has been a leading player in recent years, delivering big gains. However, as has been the case so far in 2025, it can also underperform major indexes during rapid sell-offs.
A solid buy for risk-tolerant investors
Long-term-minded investors who are more interested in where their portfolios will be several years from now, rather than the short-term fluctuations, may want to take a closer look at the consumer discretionary sector, either through a low-cost ETF or by selecting individual stocks. Given the concentration in Amazon and Tesla, the Vanguard Consumer Discretionary ETF is probably not a great buy if you either already own those two names or if you don't want so much exposure to just two stocks.
The Vanguard Growth ETF(NYSEMKT: VUG) is a good alternative for investors looking for multiple megacap growth stocks (not just Amazon and Tesla) while still getting exposure to many of the other top holdings in the consumer discretionary sector. The fund has also sold off year to date due to its concentration in the technology, consumer discretionary, and communications sectors -- making it a worthwhile choice for investors interested in growth stocks who are willing to stomach volatility.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Daniel Foelber has positions in Nike. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Booking Holdings, Chipotle Mexican Grill, Home Depot, Lululemon Athletica Inc., Meta Platforms, Netflix, Nike, Starbucks, Tesla, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool recommends Carnival Corp. and Lowe's Companies and recommends the following options: short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
