Retail ETFs Poised For Holiday Pop

November 12, 2013

‘Brick-and-mortar’ retailers will have to work twice as hard as their online competition this holiday season.

While overall sales for this holiday shopping season are projected to inch higher than a year ago, online sales are forecast to skyrocket, driven by six fewer days of shopping and cautious consumers looking online more frequently to stretch their retail dollars. The tilt toward online retailers like Amazon is likely to fuel a potential windfall for ETFs.

Online retailers will benefit most from the shortened shopping season this year, according to Michael Souers, senior industry analyst at S&P Capital IQ. Conversely, traditional retailers, while still generating much more in terms of sales than online retailers, are likely to feel the effects of lower traffic related to the shorter shopping season.

“I think shoppers are going to find it convenient shopping from home and getting free shipping and returns from online retailers, rather than fighting the traffic,” Souers said.

Souers added that Amazon has built up a significant amount of processing centers and can guarantee quick delivery, even if consumers buy as little as $35 worth of goods. Amazon, in a partnership with the U.S. Postal Service, this month will begin delivering on Sundays in New York and Los Angeles, with additional cities to be added next year.

Online retail research firm Shop.org expects online sales in November and December to grow between 13-15 percent compared with last holiday season to as much as $82 billion. The online trade group measures electronic sales as a component of the U.S. Department of Commerce’s “non-store” category, which includes sales from kiosks, direct to consumer and mobile.

Investors in the $1 billion SPDR S&P Retail ETF (XRT | A-43) and the $51.1 million Market Vectors Retail ETF (RTH | B-61), which both make Amazon a part of their top holdings, are bracing for a very merry Christmas.

Year-to-date, XRT is up 33.4 percent, and RTH has gained 33.1 percent. The $35 million PowerShares Dynamic Retail ETF (PMR | B-44) has gained 39.0 percent, though it currently doesn’t have exposure to Amazon.

Rather, PMR’s top holdings are Walgreens, grocery chain Kroger Co. and Costco.

XRT_vs._PMR_vs._XRT_YTD_Performance

Chart courtesy of StockCharts.com

 

 

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