Retail ETF Rise Ahead of a Robust Holiday Season – December 15, 2017

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The story narrating the retail sector’s transformation is now old. What is coming up is the most happening holiday season, the key yearly event for retailers. This money-making period brings with it a lot of enthusiasm as Christmas and Thanksgiving provide ample opportunities for retailers to make up for lost profits during the year.

After the overwhelming sales numbers for Black Friday and Cyber Monday, that raked in as much as $335.47 average spending from individuals, the optimism for the Christmas sales has certainly doubled up.

The spending data from Thanksgiving through Cyber Monday indicates that the U.S. retail industry is ready to shed all worries and embrace a profitable holiday season this year. Data from the nation’s largest retail trade group, National Retail Federation (“NRF”) revealed that more than 174 million Americans shopped in stores and online during the Thanksgiving holiday weekend, leaving behind its estimate to engage 164 million shoppers.

A sentiment that is ruling the retail sector this holiday season is that shoppers are willing to spend more online this holiday season. However, the charisma of in-store shopping remains key to the overall shopping experience. According to a survey conducted by Deloitte, about 83% of the respondents are likely to use their smartphones, laptops, desktops and social media to shop this holiday season.

This trend was palpable during the recent Cyber Monday sales, when more than 81 million shoppers made purchases online. This popular online shopping day raked in online sales of a record $6.59 million, as per Adobe Analytics. Reflecting $1 billion (or 16.8%) growth from last year, this day marked the largest online shopping day in U.S. history.

However, the two top days for in-store shopping this year were Black Friday and Small Business Saturday, when 77 million and 55 million shoppers, respectively, stepped out of their homes to take advantage of the big deals.

Holiday Projections

Coming to the forecasts for this year’s holiday season, analysts remain optimistic on grounds of gradual wage growth, lower inflation, low unemployment rate, an uptick in the U.S. consumer sentiment and a lift in economic activity post hurricanes. Characterized by the aforementioned improvement in the consumer backdrop, alongside early-hour store openings, huge discounts, promotional strategies, price matching and free shipping on online purchases, this holiday season is likely to be a huge success.

Overall, NRF projects retail sales for November and December (excluding autos, gas and restaurant sales) to improve 3.6-4% to $678.75-$682 billion, up from $655.8 billion (or 3.6% growth) last year and better than the five-year average sales growth of 3.5%.

Moreover, Deloitte projects holiday season sales to go up as much as 4.5%, while e-commerce sales are envisioned to improve 18-21%. At the same time, it expects in-store purchases to account for 42% of this year’s holiday sales.

Playing the Sector Through ETFs

ETFs present a low-cost and convenient way to get a diversified exposure to this sector. Below we have highlighted a few ETFs tracking the industry:

SPDR S&P Retail (XRT Free Report)

Launched in June 2006, SPDR S&P Retail (XRT Free Report) is an ETF that seeks investment results corresponding to the S&P Retail Select Industry Index. This fund consists of 88 stocks, the top holdings being Express Inc. (EXPR), L Brands Inc. (LB) andUrban Outfitters Inc. (URBN), representing asset allocation of 1.91%, 1.71% and 1.66%, respectively, as of Dec 4, 2017. The fund’s gross expense ratio is 0.35%, while the dividend yield is 1.47%. XRT has AUM of $788.2 million as of Dec 5, 2017.

Market Vectors Retail ETF (RTH Free Report)

Initiated in December 2011, Market Vectors Retail ETF (RTH Free Report) tracks the performance of Market Vectors US Listed Retail 25 Index. The fund comprises 26 stocks, the top holdings being Amazon.com Inc. (AMZN), Home Depot Inc. (HD) and Wal-Mart Stores Inc. (WMT), representing asset allocation of 17.52%, 7.65% and 6.87%, respectively, as of Dec 5, 2017. The fund’s net expense ratio is 0.35% and dividend yield is 1.48%. RTH has managed to attract $60.8 million in assets under management till Dec 5, 2017.

PowerShares Dynamic Retail Portfolio (PMR Free Report)

PowerShares Dynamic Retail (PMR Free Report) , launched in October 2005, follows the Dynamic Retail Intellidex Index and is made up of 31 stocks that are primarily engaged in operating general merchandise stores such as department stores, discount stores, warehouse clubs and superstores. The fund’s top holdings are The Kroger Co. (KR), Best Buy Co. Inc. (BBY) and Costco Wholesale Corp. (COST), reflecting asset allocation of 5.50%, 5.24% and 5.21%, respectively, as of Dec 4, 2017. The fund’s net expense ratio is 0.63%, while the dividend yield is 1.10%. PMR has managed to attract $14.4 million in assets under management as of Dec 5, 2017.

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