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ETF Talk: Retail Could Be a Gift for Your Portfolio

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11/09/2011

The holiday season is approaching and the sector that you may want to focus on for investment opportunities is retail. October retail sales numbers were less than stellar, so it adds importance to the upcoming holiday season to aid the financial performance of retailers. As Thanksgiving and the start of the traditional holiday-selling season nears, let’s consider the retail sector. It is a time-honored tradition that strong retail sales numbers can drive nice profits for investors who buy the shares of retailers before the holiday-selling season starts. Already this year, retail sector exchange-traded funds (ETFs) have outperformed the market. This week’s ETF Talk features the SPDR S&P Retail ETF (XRT), which is up 16% during the past year.
 
The SPDR S&P Retail ETF seeks to replicate as closely as possible, before expenses, the total return performance of the S&P Retail Select Industry Index. The fund is designed to provide investors with low turnover, accurate tracking and low costs. As of Nov. 8, XRT’s top holdings included: Aeropostale, 1.61%; Sears Holdings Corp., 1.36%; Blue Nile Inc., 1.31%; Charming Shoppes Inc., 1.26%; JC Penney Inc., 1.25%; Rent a Center Inc. 1.25%; Hibbett Sports Inc., 1.25%; American Eagle Outfitters, 1.24%; Kohl’s Corp., 1.23%; and Big Lots Inc., 1.23%.
 
XRT is an ETF that tracks the entire retail market, so the fund invests in each retail sector. Depending on your investment research and thoughts about how retailers will perform, you may think XRT will perform well this holiday season. XRT is heavily invested in apparel retail, with more than 30.36% of its holdings consisting of companies in that sector. Traditionally, the clothing retailers are those that rely on the holiday season the most for sales. The fund’s portfolio also emphasizes specialty stores, 15.87%; automotive retail 12.77%; and department stores, 8.37%. 
 
 
Going into this holiday season, retailers are cautiously optimistic. However, the European debt contagion spreading to Italy, stubbornly high unemployment in the United States and other economic issues are raising concerns among consumers. This worry puts pressure on retailers to trim inventories. Retailers generally learned in 2008 to operate lean during the holiday season. As a result, only 23% of stores have increased their inventory going into the holidays, according to a chief marketing officers’ survey. Among the chief marketing officers surveyed at largest retailers, 67% predicted that their same store sales would rise this holiday season. So, even with weak consumer spending, these lean retailers still could perform well this holiday season.
 
With the global economic conditions dragging retailers to attractive buying levels before the holidays, you may want to consider investing in XRT. As always, if you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my ETF Trader service. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.

 
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