XRT SPDR S&P Retail

Although online purchases are becoming an increasingly important part of retail sales, Black Friday is still a critical day for the shopping world. According to the National Retail Federation, up to 152 million people plan to shop on the weekend, a 14 million increase from just a year ago. Obviously, with nearly half of the country hitting stores over the next few days it will be an important time for the sector, especially if realized trends deviate from expectations.

Luckily for those in the sector, many recent data points have been looking relatively positive, suggesting that retailers could be in for a solid Holiday season. Jobless claims continue to trend lower with the 4-week moving average moving below 395,000 while consumer sentiment continues to hold steady. Furthermore, recent stats on personal income and consumer spending also suggest a bullish trend in the marketplace, with income figures rising above market consensus in month-over-month terms.

Nevertheless, with home prices still stuck in doldrums, high unemployment levels, and storm clouds building over the global economy, there is a very real worry that people will not spend as they have in years past. If initial reports suggest that this happens, it could lead to a sell-off in the sector and push retail stocks, which have held up surprisingly well so far, sharply lower heading into December. With this backdrop, we suggest that investors keep a watchful eye on the retail sector and especially ETFs tracking the segment. Below, we highlight three retail ETFs that could be in for an active day both on Friday and when the markets resume trading on Monday, no matter what the data says about the spending:

SPDR S&P Retail ETF (XRT)

This retail fund is by far the most popular in the space with close to $778 million in assets with average volume exceeding 10 million shares a day. The fund holds just under 100 securities while charging investors an expense ratio of 0.35%. However, this ratio is more than made up for by the dividend yield of XRT which comes in just under 1%. In terms of individual holdings, Barnes & Noble (BKS) takes the top spot and is closely followed by Aeropostale (ARO) and Charming Shoppes Inc. (CHRS) This gives the fund a tilt towards apparel retail while specialty stores and automotive retail also make up double digit allocations as well. For performance, XRT has gained about 1.2% on the year although it has fallen by about 6.2% in the past one month period.

Retail HOLDRS Trust (RTH)

This fund, which will soon be moving to a new home under the Van Eck umbrella, is another choice for investors in the space. Like most funds under the HOLDR name, this product is extremely concentrated with 18 securities making up the entire basket and nearly 83% going towards the top ten holdings. Individual securities making up the top spots include Wal-Mart (WMT) at 18.7%, Amazon.com (AMZN) at 13.7%, and Home Depot (HD) at 13.2%. Thanks to this focus on larger securities, RTH has lost just 4.8% in the past month, but over the year-to-date period the product has lagged its more popular counterpart, gaining just 0.2%.

PowerShares Dynamic Retail Portfolio (PMR)

For investors seeking a slightly more active approach, PMR could be a way to play the sector. The fund tracks the Dynamic Retail Intellidex Index, which is a benchmark that thoroughly evaluates companies based on a variety of investment criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. Securities shown to possess the greatest capital appreciation potential are selected by the index, and those that do not have these qualities are removed from the basket. This results in a slightly smaller portfolio than what investors see in XRT as the fund has just under 30 securities in total. Furthermore, thanks to the fund’s methodology, the product has a heavier tilt towards mid and small cap securities making the fund a more volatile choice. Nevertheless, the fund’s methodology, which does cost investors nearly twice as much as other products in the space, has resulted in some level of outperformance as the fund has beaten out the retail ETF competition on both a one month and year-to-date basis.

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AMAZON.COM INC (AMZN): Free Stock Analysis Report
 
AEROPOSTALE INC (ARO): Free Stock Analysis Report
 
BARNES & NOBLE (BKS): Free Stock Analysis Report
 
CHARMING SHOPPE (CHRS): Free Stock Analysis Report
 
HOME DEPOT (HD): Free Stock Analysis Report
 
WAL-MART STORES (WMT): Free Stock Analysis Report
 
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