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The Comprehensive Guide to Retail ETFs

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As a worldwide leader in the retail business, the United States provides ample growth opportunities for all types of retail companies. The wide spectrum of the retail industry ranges from internet catalog sales, auto dealers, convenience stores to vending machines and clothing; thus dividing retailers into numerous categories.

Retailers of all sizes, including individual direct marketers or direct sellers, small- to medium-sized franchise unit owners, and large “big-box” store operators compete in the U.S. (Read: 3 Bank ETFs Leading the Pack this Earnings Season)

From a growth perspective, the retail industry is among the dominant U.S. industries, and employs an enormous workforce. Retailers nowadays are largely concentrating on buyers’ needs and lure them with innovative products, attractive discounts, free shipping and the ease of shopping through smartphones and tablets.

Retail is no different from other U.S. industries, and is highly dependent on the economy to prosper. Such heightened dependence on the economy and factors like job growth and interest rates indicate that a speedy recovery of the economy is vital for the health of the retail industry. While the unemployment rate has decreased considerably over time, consumers are now beginning to draw out their savings to spend, anticipating some economic recovery.

So far this year, the broader markets have portrayed signs of a better pace of recovery and have thus sparked hopes of a better economic scenario going forward. The significant recovery in the stock market is reflected through strong gains for the broader market indices. (Read: 3 Hot Sector ETFs Surging to #1 Ranks)

The retail industry is highly competitive and encounters significant challenges. Although the U.S. economy has started witnessing a recovery, we still believe that 2013 will not fully mark the resurrection. Consumers are slowly regaining confidence and cautiously increasing their spending.

A recent Conference Board data suggested that Consumer Confidence Index improved to 81.4 in Jun 2013 from a revised 74.3 in May 2013. The index notched its highest level since Jan 2008, when it had touched 87.3. This prompts a sense of optimism about steady increase in consumer spending going forward. Consumer spending accounts for over 2/3rd of the U.S. economic activity. (Read: Beat the market with ‘Pure’ ETF strategies)

Playing the Sector through ETFs

ETFs present a low-cost and convenient way to get a diversified exposure to this sector. We have highlighted a few ETFs tracking the industry:

SPDR S&P Retail (XRT - Free Report) :

Launched in June 2006, XRT seeks investment results corresponding to the S&P Retail Select Industry Index. This fund consists of 98 stocks, with the top holdings being of Netflix, Inc. (NFLX), SUPERVALU Inc. (SVU) and Groupon, Inc. (GRPN), representing asset allocation of 1.22%, 1.21% and 1.16%, respectively, as of Jul 25, 2013.

The fund’s expense ratio is 0.35%, while dividend yield is 1.31%. XRT has AUM of $1.04 billion as of Jul 23, 2013.

Market Vectors Retail ETF (RTH - Free Report)

Initiated in December 2011, RTH tracks the performance of Market Vectors US Listed Retail 25 Index. The fund comprises 25 stocks with the top holdings being of Wal-Mart Stores Inc. (WMT), The Home Depot, Inc. (HD) and Inc. (AMZN), representing asset allocation of 8.99%, 7.99% and 7.73%, respectively, as of Jul 25, 2013.

The fund’s expense ratio is 0.35% and dividend yield is 1.53%. RTH has managed to attract $34.87 million in assets under management till June 29, 2013.

PowerShares Dynamic Retail (PMR - Free Report) :

PMR, launched in Oct 2005, follows Dynamic Retail Intellidex Index and is made up of 30 stocks that are primarily engaged in operating general merchandise stores such as department stores, discount stores, warehouse clubs and superstores. The fund’s top holdings are of The Kroger Co. (KR), The Gap, Inc. (GPS) and Whole Foods Market, Inc. (WFM), reflecting asset allocation of 5.39%, 5.16% and 5.01%, respectively, as of Jul 25, 2013.

The fund’s expense ratio is 0.63%, while dividend yield is 1.97%. PMR has managed to attract $39.00 million in assets under management as of Jul 25, 2013.

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