Retail ETFs Offer Diverse Shopping List as Economic Concerns Mount

Investors seek funds to navigate a worsening economy.

It seems like a recession is at the doorstep. But that doesn’t mean investors can’t find ways to defend or exploit a worsening economy.  

April has brought troubling economic signs for U.S. consumers. Earlier this month, retail sales declined more than expected, due in large part to consumers purchasing fewer cars and other “big ticket” items.  

With layoffs making headlines, and consumer confidence hitting a nine-month low, it’s no surprise that fewer Americans are planning to shell out for a major household appliance than at any time in the past 12 years. It's getting tight out there. 

While consumers have been remarkably resilient coming out of the pandemic, this trend change is alerting investors that they need to consider the retail industry, in terms of the stock market, from a variety of angles.  

That puts in play a range of retail-oriented ETFs that can help put those views into action, regardless of whether investors see the economic glass as half full or half empty—just like many retail stores are these days. 

The SPDR S&P Retail ETF (XRT) is the largest fund of its kind, holding approximately 90 different stocks. The holdings are equally weighted, which knocks down the risk of one stock or a small number of holdings causing XRT to drop sharply. Broad and diverse exposure makes this the No. 1 fund to analyze for retail bulls. 

For a more top-heavy fund, there’s the VanEck Retail ETF (RTH). While it only owns 25 stocks, its portfolio includes Amazon.com Inc., which is as ubiquitous here as its trucks are on our streets. That behemoth stock takes up 22% of the shelf space in RTH, and Home Depot Inc., Walmart Inc., Costco Wholesale Corp. and Lowe’s Companies Inc. combine for another 30%. Holding such a focused ETF may make it easier to track what’s going on inside it, since so few stocks mean RTH’s fate is largely tied to how its “big five” perform. 

While people’s personal opinions about Amazon vary, for its part, the ETF world offers a way to express an investment view. The Direxion Daily AMZN Bear 1X ETF (AMZD) is one of a newer crop of ETFs that simply aim to profit from the decline in price of that stock—essentially, these funds are the ETF version of shorting a stock. In this case, the stock is Amazon, and since it is such an influential part of the retail business, when it drops, there’s a good chance the larger industry will go with it. 

Finally, the retail ETF version of “small but mighty” is the ProShares’ Retail Store ETF (EMTY). At just over $10 million in assets, this five-year-old fund targets the continued transition from brick-and-mortar retail to online. It has been an effective way to profit from broader stock market declines, posting positive returns during the last two down years for the S&P 500 (2018 and 2022). 

The nature of how we shop has changed dramatically over the past decade. The economy is in transition, with the retail industry right in the crosshairs, which makes this a good time for investors to get familiar with a wide range of options for investing in either direction through ETFs.