Millennials, who are individuals born between 1980 and 2000, represent the largest generation in the United States, totaling 92 million as of 2017. Millennials have grown up during a period of rapid change that has shaped their priorities and expectations as well as influencing their spending patterns and how they perceive money. Younger customers value experiences and sharing information. Therefore, companies in the consumer discretionary and technology sectors that focus on travel, entertainment, and dining are poised to benefit from their spending habits.
Investors who wish to take advantage of millennial spending patterns should consider purchasing these three exchange-traded funds (ETFs). All figures are as of Aug. 7, 2017.
Launched in May 2016, the Global X Millennials Thematic ETF (NASDAQ MILN) seeks to replicate the price and yield performance of the Indxx Millennials Thematic Index by investing the majority of its assets in U.S. companies that have significant exposure to the millennial demographic cohort. The fund's portfolio has 50% exposure to consumer cyclicals and 30% exposure to technology. Stocks that make up the ETF's top five holdings include PayPal Holdings Inc. (NASDAQ PYPL), Expedia Inc. (NASDAQ EXPE), Intuit Inc. (NASDAQ INTU), Alphabet Inc. Class A (NASDAQ GOOGL) and Amazon.com Inc. (NASDAQ AMZN).
The Global X Millennials Thematic ETF has $7.2 million in assets under management (AUM) and pays investors a 12-month trailing yield of 0.28%. It has an expense ratio of 0.5%. The ETF has returned 13.58% over the previous 12 months and has an impressive year-to-date (YTD) return of 15.25%.
The Principal Millennials Index ETF (NASDAQ GENY) is a similar size to MILN with $7.6 million in AUM and attempts to track the NASDAQ Global Millennial Opportunity Index. The fund, created in August 2016, invests in global companies that have exposure to millennial spending patterns. Stocks in the consumer cyclical and technology sectors account for roughly 80% of the ETF's holdings. Key allocations include Tencent Holdings Ltd (OTC TCEHY) at 3.1%, NVIDIA Corporation (NASDAQ NVDA) at 2.6% and NetEase Inc. ADR (NASDAQ NTES) at 2.58%.
The Principal Millennials Index ETF is slightly cheaper that MILN with an expense ratio of 0.45%, however, it does not issue a dividend. Investors have enjoyed a solid YTD return of 22.83%; the ETF has returned roughly 10% in the previous three months alone.
The PowerShares Dynamic Leisure & Entertainment ETF (NYSEARCA PEJ), formed in 2005, has the objective of providing a similar return to the Dynamic Leisure and Entertainment Intellidex Index. Constitute companies that comprise this index provide investors with broad exposure to the leisure and entertainment industries, which should benefit from millennial spending patterns, such as the increased demand for purchasing experiences. The ETF has 29 holdings in its portfolio. The top five allocations have a cumulative 27.05% weighting and include large cap stocks, such as Royal Caribbean Cruises (NYSE RRC), American Airlines Group Inc. (NASDAQ AAL), McDonald's Corporation (NYSE MCD), Time Warner Inc. (NYSE TWX) and Delta Air Lines Inc. (NYSE DAL).
The PowerShares Dynamic Leisure & Entertainment ETF is the most expensive of the list with an expense ratio of 0.63% but pays investors a 1.03% dividend. The fund has returned 14.64% over the past five years, 7.72% over the previous three years and had a YTD return of 3.45%. The ETF is the largest of the three funds, with AUM totaling $119 million.
Millennials have substantial spending power; their influence is likely to shape consumer demand for years to come. ETFs that have exposure to companies which are positioned to benefit from the spending patterns of this generation are worth exploring further.
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