Though retail sales in May came in below expectations this morning, pent-up consumer demand, rising consumer sentiment and record levels of savings remain available to be unleashed on the economy.
And this year may look very different than last year, when COVID sent consumers to buy staples such as toilet paper, bleach, food and basic home needs. Discretionary purchases for things like clothing, makeup and vacations are expected to benefit from shoppers more than ready to treat themselves in the months ahead.
One sweet spot of the retail space that could potentially benefit is the luxury goods market, which was one of the most severely impacted retail area by the pandemic, contracting for the first time since 2009.
According to research firm McKinsey, more than 50% of U.S. consumers surveyed are expecting to spend extra by splurging, particularly on categories such as apparel, beauty and electronics.
The Roaring (20)20s
One ETF that might benefit from this shift is the Emles Luxury Goods ETF (LUXE), which tracks a market-cap-weighted index with exposure to global luxury goods companies. The ETF launched in November 2020, and is small, with just $4 million in assets, and comes with a pricey 0.60% expense ratio. However, it may be the best-positioned ETF for a rebound in luxury goods.
Top holdings in this ETF include automakers such as Volkswagen (parent company to brands such as Audi and Porsche) and Daimler AG; apparel companies such as Nike; and beauty companies such as Estee Lauder.
LUXE is global in nature, with just under 64% of the portfolio allocated to companies that are domiciled outside the U.S.
The luxury goods market is also a beneficiary of the growing middle class in emerging markets, a trend that is likely to continue due to favorable demographics in these countries.
How Does LUXE Compare?
LUXE Ready To Rally?
Comparing LUXE performance to that of other retail and consumer discretionary ETFs shows that investors might be anticipating this expected shift in spending as well.
Though at first glance, the performance of the SPDR S&P Retail ETF (XRT) jumps off the chart, much of the performance has been driven by the meme stock, GameStop. (Read: GameStop Throws 2 ETFs For A Loop).
It is unlikely that future outperformance of this sort could be replicated (though the meme stock mania has been surprisingly sticky). And even if it were, investors should be wary of the potential for volatility and single-stock risk should one name become an outsized portion of the portfolio.
The Amplify Online Retail ETF (IBUY) was last year’s darling, with returns nearing 125% as consumers turned to online spending in light of lockdowns and COVID restrictions, limiting brick-and-mortar shopping for much of the year. However, performance has struggled so far this year. The fund faced a rough patch of performance from late April to mid-May, leading to net outflows for the year so far.
Meanwhile, the Consumer Discretionary Select Sector SPDR Fund (XLY) has mostly performed in line with LUXE … until recently. From May 11 through June 11, XLY was down around -0.7% while LUXE gained 5.4% in the same time frame, outpacing both domestic and international markets, as represented by the SPDR S&P 500 ETF Trust (SPY) and the iShares MSCI ACWI ex U.S. ETF (ACWX), and suggesting that the global nature of LUXE cannot claim full responsibility for the outperformance.
Courtesy of StockCharts.com
In line with the finer things in life that it offers exposure to, LUXE comes with a heftier price tag relative to its less-niche peers. LUXE’s annual price tag is 0.60%, five times as expensive as XLY and 0.25% pricier than the retail-focused XRT.
However, it does ring up 0.05% cheaper than IBUY, though with only four securities overlapping between ETFs as of time of writing, the funds are offering quite differentiated exposure from one another.
Contact Jessica Ferringer at [email protected]