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Amazon ETFs to Gain on FAA Approval for Prime Air Drone Delivery

Sweta Jaiswal, FRM

Consumers currently opt for online purchases of food items and other goods and are resorting to video streaming services and other modes of in-house entertainment. In line with the rising online shopping trend, customers are resorting to digital payments to clear their bills, while merchants and utility providers are advocating the same.

Also, the pandemic has resulted in some changes in the lifestyle and preferences of people. Most of the surveys have found that people are opting for online shopping over visiting a brick-and-mortar store for their purchases of essential food items and supplies. Even as the global economy starts to reopen in phases and social-distancing restrictions are being eased, people are trying to minimize human-to-human contact.

Against this backdrop, Amazon’s AMZN latest receipt of an approval from the Federal Aviation Administration (“FAA”) allowing it to test commercial deliveries through its drone fleet seems to be well-timed. Riding on the increasing online shopping trends, and other online services, Amazon has gained 91.1% so far in 2020. In fact, the online e-commerce behemoth posted the biggest profit in its 26-year history buoyed by a massive boost from the accelerated adoption of e-commerce amid the pandemic.

In this regard, David Carbon, an Amazon vice president who oversees Prime Air, said that, “this certification is an important step forward for Prime Air and indicates the FAA’s confidence in Amazon’s operating and safety procedures for an autonomous drone delivery service that will one day deliver packages to our customers around the world,” according to a Bloomberg article.

Going by the sources, Amazon plans to use MK27 drones equipped with a maximum 5 lb carrying capacity. Notably, the company’s drones can tilt and fly just like a plane, a feature helping these drones avoid collisions with other aircrafts. The move brings Amazon closer to its target of reducing delivery time to 30 minutes or less, per The New York Times report.

Notably, with the receipt of the Part 135 air carrier certificate, Amazon has become the third company to be awarded with it. Wing Aviation, owned by Google’s parent company, Alphabet (GOOGL) and UPS Flight Forward are the other two recipients, per The New York Times report. However, none of these companies have started drone delivery widely as yet.

ETFs to Shine

Given this, investors could tap Amazon in the form of ETFs with the highest allocation to this Internet giant. Below we have highlighted five of them:

Consumer Discretionary Select Sector SPDR Fund XLY

This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. It is the largest and most-popular product in this space, with AUM of nearly $17.20 billion and average daily volume of around 4.8 million shares. Holding 61 securities in its basket, Amazon takes the top spot with 24.9% of assets. The fund charges 0.13% in expense ratio and has a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: Hurricane Laura to Hurt/Boost These ETF Areas).

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 255 stocks in its basket. Of these, Amazon takes the top spot with 24.8% share. The product has amassed $1.11 billion in its asset base while trading in a good volume of around 199,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Will ETFs Gain on Upbeat U.S. Consumer Sentiments in August?

ProShares Online Retail ETF ONLN

This is the first ETF focused exclusively on retailers that principally sell online. It follows the ProShares Online Retail Index, holding 27 stocks in its basket. Amazon is the top firm accounting for about 24.5% of the portfolio. The product has amassed $338 million in its asset base while currently trading in a paltry volume of around 95,000 shares a day on average. It charges 58 bps in annual fees from investors (read: 5 ETF Areas Hitting Highs on Resurging Coronavirus Cases).

Vanguard Consumer Discretionary ETF VCR

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index and holds 292 stocks in its basket. Of these, Amazon occupies the top position with 23.9% allocation. VCR charges investors 10 bps in annual fees, while volume is moderate at nearly 119,000 shares a day. The product has managed about $4.11 billion in its asset base and carries a Zacks ETF Rank #3, with a Medium-risk outlook (read: How to Ride on a Soaring Amazon With ETFs).

VanEck Vectors Retail ETF RTH

This fund provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index. Of these, Amazon takes the top position in the basket with 22.8% share. The product has amassed $174.9 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 20,000 shares per day. RTH has a Zacks ETF Rank #2, with a Medium-risk outlook.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
VanEck Vectors Retail ETF (RTH): ETF Research Reports
 
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
 
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
 
Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports
 
ProShares Online Retail ETF (ONLN): ETF Research Reports
 
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