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Should You Buy Retail ETFs Now?

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Traditional retailers have faced a very challenging environment this year due to rising consumer preference for shopping online. Most retail stocks were hammered earlier this year, while Amazon (AMZN) shares soared almost 60% year to date, as shopping moved online.

Some analysts believe that retail stocks were beaten down too much and we have seen a nice rebound in retailer stocks of late.

Further, a strong start to the holiday shopping season boosted optimism for these stocks. Some stores saw strong customer traffic on Black Friday but overall Thanksgiving and Black Friday traffic fell 4% year over year.

On the other hand, online sales surged 16.8% year over year to reach a new record of $6.59 billion on Cyber Monday, according to Adobe Insights. Mobile sales hit $2 billion for the first time.

Amazon is the biggest beneficiary of this trend, as it accounts for almost 25% of all online sales.

At the same time, many other retailers have also invested significantly in their e-commerce operations, which is paying off now.

It remains to be seen which retailers would be able survive the Amazon onslaught over the longer-term, but it seems that in the short-term, some of the retail stocks and ETFs may continue to do well. The three most popular ETFs in the space offer very different exposure to retail stocks.

Amplify Online Retail ETF (IBUY) that seeks to capitalize on the changing retail landscape, invests in companies that derive significant (70% of more) portion of their revenue from online and virtual sales. This fund is up about 42% this year.

On the other hand, the most popular ETF in the retail space—the SPDR S&P Retail ETF (XRT) is down 1.5% year to date, even though it has rebounded nicely and is up more than 11% in the past one month. It is an equal weighted ETFs, which means higher exposure to smaller companies than its market cap weighted peers.

Another popular Retail ETF--VanEck Vectors Retail ETF (RTH) holds 25 largest US retailers and weights them according to their market cap. Almost 20% of its assets are invested in Amazon. Wal-Mart (WMT) and Home Depot (HD - Free Report) are its other top holdings.

To learn more about these ETFs, please watch the short video above.

 

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