Retail ETFs Shake Off Disappointing Sales

February 12, 2015

U.S. retail sales fell again in January for the second month in a row, defying expectations that lower oil prices would translate into higher consumer spending. But so far, retail-related ETFs have staved off the declining numbers because, while cheaper oil may be skewing the data, consumer confidence remains intact.


Yes, consumers seem to be mindful of how they spend their money these days, but some retail segments are doing quite well. The latest sales report released today showed that in the aggregate, retail sales dipped 0.8 percent last month after declining 0.9 percent the previous month.


Behind that drop is a major pullback in gasoline sales, which slipped more than 9 percent to their lowest levels since 2008. That decline merely reflects the dramatic drop in oil prices seen in the past several months, Sumit Roy, analyst tells


But outside of gasoline, retail sales are largely unchanged month-on-month, with segments such as restaurants and online-based retailers actually reporting an uptick in sales, Roy says.


Funds such as the SPDR S&P Retail ETF (XRT | A-46), with $1.5 billion in assets, and the PowerShares Dynamic Retail Portfolio (PMR | B-45), with $24 million, continued to trend higher this morning, with gains of 20 percent and 26 percent, respectively, seen in the past 12 months.


The broad-based Consumer Discretionary Select Sector SPDR Fund (XLY | A-92)—the behemoth in the consumer discretionary segment, with $8.4 billion in assets—is also on the rise, gaining nearly 16 percent in the same period.



Chart courtesy of


Dispersion In Performance


XLY tracks a market-cap-weighted index of consumer discretionary stocks drawn from the S&P 500 Index. It’s a highly liquid fund that serves as a benchmark to the segment for many.


But both XRT and PMR hone in on retail stocks through different lenses, serving up slightly different exposure that explains the dispersion in their performances.


XRT, for instance, tracks a broad-based, equal-weighted index of stocks in the U.S. retail industry. It draws its stocks from the broad S&P Total Market Index, and not the S&P 500. That broader pool of stocks translates into a portfolio that goes well beyond large-cap names, and includes several small-caps.


Some of its largest holdings include names like Netflix, Rite Aid, and J.C. Penney.


PMR, on the other hand, tracks a multifactor, tiered equal-weighted index of U.S. retail stocks that is designed to outperform—rather than match—the retail segment, according to data. The fundamental screens result in a portfolio that tilts toward smaller-cap names, and that includes retailers not found in other competing portfolios, particularly drug-related companies.


The fund’s biggest holdings include Kroger, Walgreens, CVS Health and Lowe’s.


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