Investors who rode tech stocks to new heights earlier this year may be looking elsewhere to give their portfolios an edge now. Many value-minded investors look for the next wave of growth in cyclical stocks that are ready to climb upward again.

Some analysts see consumer discretionary stocks as the place to be when the market swings away from high-growth tech. One popular way to put this strategy into practice is through exchange-traded funds (ETFs). ETFs are investment vehicles that typically seek to mirror an underlying index. Simple, right? Rather than guess which well-known brands will benefit the most from an improving economy, why not get exposure to all the big names?

But that strategy is no longer quite so simple, because of a company that's already upended the consumer goods landscape in other ways: (AMZN -0.29%). Amazon's inclusion in consumer goods ETFs has made them behave like their tech counterparts.

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Flying blind

Institutional research and asset management firm Leuthold Group says the consumer discretionary sector has changed markedly over the past few years because the e-commerce giant has grown to dominate the market.

Analyst Scott Opsal wrote in a research note that stocks in the sector now behave more like information technology stocks than they do like those in other cyclical sectors such as industrials or materials. "Amazon's ballooning weight in the S&P 500 Consumer Discretionary Index has fundamentally changed the sector's character and performance profile," Opsal said.

That's important, because investors who think they are shifting their asset exposure away from tech by buying consumer discretionary stocks are actually running directly toward what they thought they were getting out of.

The Amazon effect

Consumer cyclicals have been the second-best performing sector in the market in 2020, with the Consumer Discretionary Select SPDR ETF (XLY 1.31%) gaining 22% this year as of Wednesday morning's prices. By comparison, the Russell 1000 index has risen about 12%.

The Leuthold Group's analysis indicates that is a direct result of the influence Amazon has exerted on the sector. Over the past six years, Amazon has grown from representing just 5% of the weight of this corner of the market to 43%, leading the sector to diverge from its historical performance.

Where industrials and materials still behave as they always have, the consumer discretionary sector is now dramatically outperforming. Opsal says that if you extract Amazon from the equation, the sector's performance gets cut in half and returns to a trend line in keeping with its traditional norms.

People who invest in ETFs should take particular note of this analysis because they are the ones buying baskets of stocks within sectors. Investors who pick individual stocks needn't be as concerned about sector rotation, at least as it applies to such broad-based analysis.

The shift to online shopping

This doesn't mean that Amazon isn't a good investment. On the contrary, there's a solid argument to be made that the e-commerce king's value will continue to rise.

The growth the sector has seen can be traced to the massive influx of online spending triggered by the COVID-19 pandemic. For example, consumers have flocked to Etsy to buy personal protective equipment made by artisans, and in part as a result of that, the e-commerce platform's stock has more than tripled in value.

Walmart, which would fall into the consumer staples sector, said online grocery orders have doubled during the pandemic, while supermarket chain Albertsons said its digital grocery sales tripled.

The accidental winner

The research showing just how much Amazon has skewed the consumer discretionary sector's performance underscores the investing maxim that you should buy what you know, but know what you're buying.

Investors wanting to get consumer discretionary exposure in their portfolios through ETFs may think they're buying a cyclical/value investment only to realize it may be a different animal. Yet it's worth noting that Amazon's influence is not uniform across ETFs.

For example, in the Vanguard Consumer Discretionary ETF (VCR 1.42%), Amazon represents over 21% of the fund's total holdings, but  it makes up only 1.4 % of the First Trust Consumer Discretionary AlphaDEX ETF (FXD 0.96%). The Vanguard ETF has returned about 30% this year, while the First Trust fund is essentially flat.

Buyer beware, though, because Amazon could upend your investing strategy even as it propels your gains higher.