Vanguard Consumer Discretionary ETF Faces Challenges Amid Economic Cycles
Investment management firm Vanguard offers approximately 50 equity-focused exchange-traded funds (ETFs) featuring ultra-low expense ratios. These funds provide straightforward ways for investors to access a diverse selection of stocks under a single ticker, thus achieving diversification tailored to specific themes or interests.
Investors can choose from Vanguard funds that focus on growth, income, and value, as well as those dedicated to individual stock market sectors.
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The Vanguard Consumer Discretionary ETF (NYSEMKT: VCR) has been one of the weakest-performing Vanguard ETFs this year, ranking second only to the Vanguard S&P Small-Cap 600 Value ETF.
The recent downturn in this sector fund presents a potential opportunity for long-term investors to consider adding to their portfolios. For a closer look, click here.
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Understanding the Cyclical Nature of Consumer Discretionary
The consumer discretionary sector is highly cyclical; it can thrive in a robust economy with low interest rates that encourage consumer spending. Conversely, it suffers during periods of rising interest rates and economic uncertainty, which can put strain on earnings and stock prices, as evidenced in the current market landscape.
Key players in this sector include home improvement retailers like Home Depot and Lowe’s, as well as restaurants and travel companies, all of which can be sensitive to declines in consumer spending. However, these businesses aren’t solely responsible for the ETF’s poor performance.
As of now, the Vanguard Consumer Discretionary ETF has lost 18.3% year to date. Among its top 10 holdings, only two—Amazon (NASDAQ: AMZN) and Tesla (NASDAQ: TSLA)—have performed worse. Their combined representation in the ETF exceeds 35%, with Amazon down over 21% and Tesla more than 41% year to date.
Additionally, the hotel and cruise line industries, which constitute 8.7% of the ETF, face similar pressures. For instance, Royal Caribbean Cruises, Carnival, and Norwegian Cruise Line have dropped 14%, 28%, and 36%, respectively, this year.
On a positive note, McDonald’s, one of the ETF’s larger holdings, has proven resilient and is among the best-performing stocks in the Dow Jones Industrial Average for 2025. Nevertheless, other restaurant chains focused on premium offerings, such as Starbucks and Chipotle Mexican Grill, have posted significant losses. Furthermore, footwear and apparel brands like Nike and Lululemon Athletica are down 24% and 32%, respectively.
The bottom line is that Amazon and Tesla weigh heavily on the ETF’s overall performance. However, widespread declines in various industries have exacerbated the sector’s challenges. Presently, consumer discretionary is the worst-performing sector, trailing even technology, which has also faced significant market shifts.
Data by YCharts.
The Long-Term Potential of Consumer Discretionary
Notably, the consumer discretionary sector remains highly sensitive to economic cycles, geopolitical issues, and tariff disputes, leading some short-term investors to divest from these stocks. However, for long-term investors, this sector can provide valuable exposure to broader economic growth.
From 2023 to the end of last year, the S&P 500 soared by 53.2%, but consumer discretionary outperformed with a remarkable 73.7% gain. Only technology (86.7% increase) and communications services (with holdings like Meta Platforms, Alphabet, and Netflix) produced better results.
Despite prior successes, the consumer discretionary sector has also exhibited significant underperformance during rapid market sell-offs, as seen in early 2025.
Considerations for Risk-Tolerant Investors
Long-term investors focused on portfolio growth several years down the line may find the consumer discretionary sector worth considering. This could be through a low-cost ETF or by selecting individual stocks. However, given the substantial concentration in Amazon and Tesla, the Vanguard Consumer Discretionary ETF may not be the best choice if you aim to diversify away from these two holdings.
For those interested in broader growth opportunities, the Vanguard Growth ETF (NYSEMKT: VUG) is a suitable option. This fund includes various megacap growth stocks, providing exposure to other leading names in the consumer discretionary space, even though it too has experienced sell-offs due to its ties to technology and consumer sectors.
Is the Vanguard Consumer Discretionary ETF a Smart Investment Now?
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John Mackey, former CEO of Whole Foods Market, which is an Amazon subsidiary, sits on The Motley Fool’s board of directors. Other members include Suzanne Frey, an executive at Alphabet, and Randi Zuckerberg, sibling of Meta Platforms CEO Mark Zuckerberg. Daniel Foelber holds positions in Nike, while The Motley Fool maintains positions in and recommends various named companies including Alphabet, Amazon, Apple, and more. A full disclosure policy is available on request.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.
