More Pain On Horizon For Retail ETFs

July 14, 2014

Consumer 'funk' keeps the sector underperforming.

Retail Performance YTD

Chart courtesy of StockCharts.com

Retailers are missing out on the 2014 stock rally: While the S&P 500 has returned nearly 8 percent so far this year, retail ETFs are flat. The start of earnings season suggests there could be more pain on the horizon too. Various retailers from GAP to Family Dollar to Lumber Liquidators have all missed expectations this earnings season. Container Store CEO Kip Tindell summed it up nicely: "Consistent with many of our fellow retailers, we are experiencing a retail 'funk.'"

Investors have a few ETFs with which they can invest in (or short) the retail industry:

  • The SPDR S&P Retail ETF (XRT | A-45) tracks an equal-weighted index of companies in the retail industry. XRT's 2014 returns are marginally negative.
  • The PowerShares Dynamic Retail ETF (PMR | B-48) uses multifactor selection and a tiered weighting portfolio construction scheme in a bid for outperformance. However, results have been anything but—PMR returned negative 1.4 percent so far this year.
  • The Market Vectors Retail ETF (RTH | B-53) tracks a plain-vanilla index of the 25 largest U.S.-listed companies that derive the majority of their revenue from retail. Its biggest holdings include retail titans such as Walmart, Amazon, Home Depot and CVS.
  • Those prone to risk-taking might favor the Direxion Daily Retail Bull 3X ETF (RETL), which provides daily 3x leveraged exposure to a plain-vanilla index of large U.S. retailers. Beware the leverage reset.

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