Retail ETFs Slammed by Inflation, Market Downturn

September 28, 2022

Consumers are feeling a little better about the economy, which may bode well for retail ETFs. 

Buoyed by falling gasoline prices and job and wage growth, consumer confidence jumped for a second straight month, the Conference Board reported yesterday.  

While consumer confidence is still less than prepandemic levels, the improving mood may provide a lift to retail ETFs that have taken a beating this year. Two examples are the $254 million SPDR S&P Retail ETF (XRT) and the $198 million Amplify Online Retail ETF (IBUY)

These funds’ losses stand out even in the current market, where hardly anything is in positive territory. While the Vanguard Total Stock Market ETF (VTI), which tracks the entire stock market, is down nearly 24% year to date, XRT and IBUY are down 35.6% and 54.9%, respectively.  

The funds share 14 holdings, largely because XRT focuses on a broader retail space. Stocks held by XRT represent more than a quarter of IBUY’s portfolio.  

Pandemic Fueled Online Retail 

The pandemic drove IBUY’s rise. Online retail jumped to a peak of 16.4% of all retail sales in the second quarter of 2020, about six months into the pandemic, according to Commerce Department figures. That’s up from 11.9% for the first quarter of 2020, which was a new high. Despite the waning pandemic, e-commerce is still grabbing almost 15% of retail sales.  

With green signals flashing, why are IBUY and XRT languishing? Inflation may be the answer. As prices have risen this year, Americans are saving less. While staples are fairly steady in terms of demand, discretionary purchases are likely taking a hit. That may explain why IBUY is even deeper in the red than XRT.  

Consider that XRT includes Walmart Inc., Albertsons Cos., Kroger’s Corp. and multiple warehouse, auto parts and discount store chains. It also holds higher-end stores like Abercrombie & Fitch Co., Nordstrom Inc. and Chico’s FAS Inc. IBUY, on the other hand, includes more companies that focus on services and products generally considered to be non-necessities like recreational travel, food delivery and subscription services. 

Not only are consumers turning more to bricks-and-mortar stores as the pandemic fades, they’re also just spending less on the types of products offered by the companies in IBUY’s portfolio.  

 

Source: Bloomberg, 12/31/2021-9/28/2022 

 

Contact Heather Bell at [email protected] 

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