With the holiday season in full swing, retailers like Costco experience a surge in sales. As the shopping calendar peaks between late November and Christmas Day, Costco has reported a prosperous fiscal year 2024. With revenues climbing 5% to $249.6 billion and net income rising by 17.1% over the previous year, Costco remains a strong player in the retail sector. Despite this, some investors are turning their attention to exchange-traded funds (ETFs) for a more diversified investment approach.
Looking back, Costco has consistently performed well, showing robust growth over the years. Historically, its membership fees have constituted a significant portion of its net profit, which saw a slight decline from 73% to 66% in 2024 as the company maintained cost control and increased profits from food sales. Investors have experienced a 221% rise in Costco’s stock over five years, reflecting its long-term value despite a notable year-to-date increase of 48% through late November.
What Are the ETF Alternatives?
Investors considering alternatives to direct Costco stock purchases might explore ETFs, which offer exposure to Costco among other holdings. The Fidelity (NASDAQ:FDBC) MSCI Consumer Staples Index ETF (FSTA) is one such option, with a focus on U.S. consumer staples stocks. Costco represents 12.30% of this ETF, making it a significant component. The FSTA has a management expense ratio of 0.08%, and its investment strategy limits exposure to prevent concentration in a single stock, offering a balanced portfolio.
Are There Other ETFs Worth Considering?
Yes, besides FSTA, the VanEck Retail ETF (RTH) and iShares Global Consumer Staples ETF (KXI) are also viable options. RTH includes 25 major retailers with Costco as a top holding at 8.74%, providing exposure to the retail industry. With a strong focus on retail giants, RTH allows investors to capitalize on the bustling retail season. Meanwhile, KXI offers international exposure with Costco being its highest-weighted stock at 9.71%. It tracks the S&P Global 1200 Consumer Staples Sector Capped Index, ensuring no single stock exceeds 10% of the portfolio.
Evaluating these ETFs, each has its merits, catering to different investment preferences. FSTA’s low expense ratio and balanced diversification make it appealing for those focused on consumer staples. RTH’s concentrated retail focus suits those betting on retail performance during peak seasons. KXI, with its global reach, attracts investors seeking a broader international outlook. These ETFs provide varied investment opportunities compared to buying individual stocks.
As investors weigh their options, it’s crucial to consider factors such as expense ratios, market capitalization, and geographic focus. Each ETF offers unique advantages, allowing investors to align their choices with their financial goals. While Costco remains a robust investment, ETFs present an opportunity for diversified exposure across the consumer staples and retail sectors. This strategic diversification can help mitigate risks associated with investing in a single stock.
The shift towards ETFs reflects a broader trend of investors seeking diversified portfolios to spread risks. As the shopping season continues to boost retail sales, these funds provide a compelling alternative for those looking to capitalize on Costco’s success without investing directly in its stock. By offering a mix of domestic and international exposure, these ETFs cater to various investor strategies and preferences.
