Holiday Shopping Not A Gift For All Retail ETFs

December 05, 2016

Americans are doing a lot of holiday shopping this year, and more so online than ever. That could bode well for equity ETFs focused on retail names, particularly those offering the most exposure to online retailers.

Here are three key data points on how the holiday shopping season is shaping up this year, courtesy of Adobe Insights:

  • On Black Friday, Americans spent a whopping $3.34 billion on holiday shopping, some 21% more than a year earlier. What’s interesting about that figure is that about a third of that total was online shopping rather than people showing up at brick-and-mortar stores.
  • On Cyber Monday, shoppers spent another $3.39 billion—a record.
  • The month of November drove nearly $40 billion in online revenue, about 7.4% more than a year earlier.

Retailers like Amazon reported having their best Cyber Monday sales volume ever, but Amazon is not alone in capitalizing on the online-retail trend. Traditional retailers like Walmart, too, have reported significant jumps in online shopping through company apps.

Retail ETFs Diverse In Exposure

In the ETF space, tapping into the retail theme can be done through focused retail ETFs as well as through broader consumer discretionary funds. And as is the case with any other ETF segment, portfolios here are vastly diverse, as is performance.

Consider some “flavors” of retail ETFs in the market today and just how different they are:

  • The SPDR S&P Retail ETF (XRT), with $641 million in assets, is the largest and most popular in the space. XRT picks retail stocks from the broad S&P Total Market Index, and not from the S&P 500, which translates into more exposure to smaller-cap names—a tilt that has served it well, particularly in recent weeks.

The fund equal-weights its holdings, each of its 96 names currently representing just over 1% of the portfolio. It has an expense ratio of 0.35%.

XRT is a broad portfolio of the more traditional brick-and-mortar names. Among its top holdings are companies such as Office Depot, Children’s Place, Cabela’s, Kohl’s and Best Buy. This is a fund where you will find traditional retailers such as Walmart, but you won’t find names like Amazon.

  • The VanEck Vectors Retail ETF (RTH), with $100 million in assets, is the retail ETF with the largest allocation to Amazon, at about 17% of the portfolio. For comparison, XRT does not own Amazon at all. While RTH is global in scope, it tilts toward U.S. retail heavyweights like Amazon, Home Depot and Walmart.

RTH is also a far more concentrated play than XRT because it owns only 26 names—less than a third the size of XRT’s portfolio—and the stocks are weighted by market capitalization. The fund has a 0.35% expense ratio.


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