Given that it's the last weekend before Christmas—have you gotten your holiday shopping done?—we thought it was the perfect time to take a closer look at a retail fund.
But which one? Given the stock market's general downward slide, none of the nine retail ETFs has particularly wowed over the past few months.
For example, the SPDR S&P Retail ETF (XRT), the largest retail ETF, with $405 million in assets under management, has fallen 6% year-to-date. Meanwhile, the e-commerce fund Amplify Online Retail ETF (IBUY), with $337 million in assets, has fallen 1%.
In fact, there's only one (nonleveraged) retail ETF that looks poised to end 2018 in positive territory: the $133 million Van Eck Vectors Retail ETF (RTH):
Long Outperformance History
Overshadowed by XRT and IBUY, RTH has been chugging along quietly for seven years, generating strong performance all the while.
Year-to-date, RTH has risen 5%. However, its performance is even more remarkable over the long haul: Over a five-year period, the fund has returned more than 11% (in contrast, XRT has only risen 0.5% over the same period).
RTH began life as one of Merrill Lynch's exchange-traded HOLDRs, or holding company depository receipts. HOLDRs were set-and-forget vehicles; they held narrow portfolios that, once set, were never changed.
Though the products had accrued significant amounts of assets, they were discontinued in 2011, though some—including RTH—found second lives in similarly constructed ETF products from Van Eck (read: "Van Eck Launches ETFs That Were HOLDRs").
Global Scope In Brick & Mortars
Today RTH remains much as it ever was, with a concentrated, market-cap-weighted portfolio of just 25 retailers. Inside, you'll find all the usual big names you'd expect: Amazon (AMZN), Home Depot (HD), Walmart (WMT), with very little exposure to pure e-commerce brands (aside from Amazon, of course).
Technically, RTH is a global fund, even though 98% of its exposure is in the U.S.; its sole overseas exposure comes from a 2% holding in China’s mega-retailer JD.com (JD). (That said, a concentration in U.S. retailers is effectively also a global play, since so many large American retailers operate worldwide.)
Higher exposure to brick-and-mortar retailers has given RTH a recent leg up over IBUY, which has had a remarkable 81% run since inception, although it also has struggled in the recent tech sell-off. Over the past three months, IBUY has fallen 23%, whereas RTH has only dropped 13%:
Charts source: StockCharts.com; data as of Dec. 19, 2018
That said, the retailers that appear in RTH's portfolio tend to have strong online presences, giving them an added boost amid the general "retailpocalypse" that has been underway over the past several years.
Why Market Cap Weighting Matters
When compared with XRT, RTH's market cap weighting appears to make all the difference, as XRT's equal weighting tends to de-emphasize the contribution from any single strong performer. RTH also has fewer names in its portfolio than XRT, which holds 91 stocks; as a result, RTH's exposure is less diluted over more, potentially weaker-performing, stocks.
With an expense ratio of 0.35%, RTH costs the same as XRT (and 0.30% less than IBUY). It also has ample liquidity, with strong daily volume and an average trading spread of 0.05%; most other retail ETFs have spreads three, five, even 10 times as high.
If you're thinking of picking up a retail ETF this shopping season, RTH may warrant a closer look.
Contact Lara Crigger at [email protected]