Black Friday Gives Retail ETFs Black Eye

December 06, 2013

It’s a sobering holiday season for retail ETFs.

Black Friday 2013 has come and gone, and early retail sales estimates are sobering. With Christmas just weeks away, investors with holdings in retail ETFs are bracing for another speed bump. But don’t discount them altogether just yet.

According to a National Retail Federation survey, traffic on Thanksgiving Day itself grew 27 percent, as nearly 45 million holiday shoppers, or 31.8 percent, took advantage of special “turkey day” savings offers, up from 35 million in 2012.

However, low prices and aggressive discounts, coupled with the fact that many holiday shoppers started shopping earlier than ever this year. contributed to the slight decline in average spending: Shoppers spent an average of $407.02 from Thursday through Sunday, down from $423.55 last year.

Shoppers’ bearish sentiments were also reflected in related retail ETFs, which have dropped between 1 and 3 percent in the past five days. For instance, the SPDR S&P Retail ETF (XRT | A-42), the Market Vectors Retail ETF (RTH | B-61) and the PowerShares Dynamic Retail ETF (PMR | B-42) were down 0.53 percent, 0.91 percent and 2.8 percent, respectively.

However, XRT, RTH and PMR are still delivering solid year-to-date gains of 43.6 percent, 39.4 percent and 38.1 percent, respectively.

The two charts below tell the recent and year-to-date tales.

RTH_vs._PMR_vs._XRT_Weekly_Performance

XRT_vs._PMR_vs._XRT_YTD_Performance

Charts courtesy of StockCharts.com

Analysts at S&P Capital IQ are projecting a sales increase of 2.5 percent over 2012’s holiday season in general merchandise, apparel, furnishings and “other” goods (GAFO), which would make this year’s the weakest holiday season since 2008.

However, the analysts cautioned investors to not avoid exposure to retail securities altogether. In fact, they’re most bullish on Amazon.com, GameStop and TJX Companies, which they view as “best positioned for the holidays.”

“We think Amazon’s recent rapid expansion of fulfillment centers gives it an edge over other online retailers when consumers are considering a last-minute purchase since products can be delivered rapidly,” according to S&P Capital IQ.

“GameStop should benefit from the introduction of the PlayStation 4 and Xbox One video game consoles [and] we see TJX's T.J. Maxx, Marshalls and HomeGoods brands attracting cost-conscious and time-strapped holiday shoppers this year with its strong value proposition and convenient off-mall store locations.”

All three ETFs—XRT, RTH and PMR—have exposure to the above-mentioned retailers.

 

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