3 ETFs for Last-Minute Back-to-School Shopping

Black Friday, Cyber Monday and the Christmas holiday season attract the maximum number of buyers and in turn hog investor attention the most but back-to-school is not far behind. Representing the second busiest shopping season after Christmas holidays, back-to-school is keeping retailers on their toes with initiatives to perk up sales.

This is especially true as families are willing to spend higher on back-to-school items this year on rising demand for apparel, shoes, supplies and electronics. As per the National Retail Federation (NRF), combined spending for back to school and college is expected to reach $74.9 billion this year, up 3% from $72.5 billion last year.

The agency projects that average family with children in grades K-12 completed about half of their shopping as of mid August, down slightly from 52.1% last year. This suggests that budget-constrained parents are looking to shop at last minute to get extra discounts from retailers, which will come mostly at the end of summer or the Labor Day weekend.

While brick-and-mortar stores will definitely be attractive shopping destinations, online sales will also remain a hot spot for the last-minute purchases, with 25% expected from the back-to-school and over 33% from back-to-college customers. As per eMarketer, online sales for back-to-school will grow 16% this year (read: Guide to Internet ETFs).

What’s On A Roll?

In the final days of the ongoing shopping season, retailers continued to lure customers with more promotional offers such as cash back, coupon discounts and free shipping.

Best Buy (BBY) and Target (TGT) unveiled price-match policy for back-to-school shoppers while office-supply retailer, Staples (SPLS) is offering an additional 10% discount on the difference between its price and its competitors’ price for identical products. The offer will end in the first week of September.

The world's largest retailer, Wal-Mart (WMT), has increased the number of back-to-school items, up 30% from last year, and kicked in a new app for its online price-matching program called Savings Catcher. The tool allows customers to compare Wal-Mart's advertised prices on several products with that of its competitors. If the Wal-Mart price is expensive, it will refund the difference in the form of an e-gift card (see: all the Consumer Discretionary ETFs here).

The online e-commerce behemoth Amazon (AMZN) also displayed a “Back to School, Back to Amazon” banner on its landing page that leads to the dedicated store for backpacks, calculators, laptops, paper and other school supplies. The company is offering coupons and heavy discounts on a variety of products.

Moreover, Dollar General (DG) is offering some cheap deals like packs of pens and pencils at a price of $1.50 compared to $2.89 at Office Depot (ODP). J.C. Penney (JCP) is providing huge discounts and coupons for school clothing, uniforms, shoes and accessories while clothing retailers such as TGT, Macy’s (M) and Gap (GPS) will offer some of the most popular sales over the Labor Day weekend.

Tech giant Apple (AAPL) is currently offering back-to-school special deals like $100 Apple Store Gift Card on the purchase of a Mac or a $50 gift card on the purchase of iPad or iPhone through September 9 (read: 3 Apple ETFs for Outperformance).

How to Play

Given the attractive offers that will likely drive overall retail and online sales, a look at the broad consumer space could be worthwhile. Investors seeking to tap the holiday promotional benefits in a diversified way could consider the following ETFs:

Market Vectors Retail ETF (RTH)

This fund follows the Market Vectors US Listed Retail 25 Index and holds about 26 stocks in its basket with AUM of $72.5 million. Average daily volume is light at under 24,000 shares while expense ratio is at 0.35%. The product is large cap centric and heavily concentrated on the top 10 holdings at 63.4% of assets with double-digit allocation to WMT, followed by 9.2% in AMZN.

Sector wise, specialty retail occupies the top position with less than one-third share, followed by double-digit allocation to hypermarkets, departmental stores, drug stores and health care services. RTH has added about 2% in the year-to-date time frame but has a Zacks ETF Rank of 4 or ‘Sell’ rating with a Medium risk outlook (read: Retail ETFs Surging on Improved Q2 Earnings).

Vanguard Consumer Discretionary ETF (VCR)

This ETF follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 386 consumer discretionary stocks in its basket. It charges investors 14 bps in annual fees while volume is good at nearly 125,000 shares a day. The product has managed $1.3 billion in its asset base so far and has a definite tilt toward large caps at 65% of assets.

The fund is widely spread across a number of sectors and securities. Movies and entertainment, cable and satellite, and Internet retail are the top three sectors accounting for a combined 32.5% share. AMZN takes the second spot at 4.6% while other companies like SPLS, M, DG, TGT, BBY, JCP and GPS make up for nice mix in the portfolio. VCR has gained 3.4% so far this year and has a Zacks ETF Rank of 4 with a Medium risk outlook.

Guggenheim S&P Equal Weight Consumer Discretionary ETF (RCD)

This fund provides wide exposure across the consumer discretionary market with an equal weight methodology. It tracks the S&P 500 Equal Weight Index Consumer Discretionary index and holds of 85 securities in its basket. Target, Best Buy, Staples, Macy’s, Dollar General and Amazon are some of its holdings. Though mid caps make up for 53% share in the fund’s portfolio, large caps take the remaining portion and only 2% goes to small caps.

In terms of industries, specialty retail takes the top spot at roughly 22.25% of the total, followed by modest allocations to media and hotel restaurants. The fund has amassed $103.5 million in AUM while volume is a light at nearly 12,000 shares. It charges an annual fee of 40 bps from investors. RCD is up 4.6% in the year-to-date time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

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Read the analyst report on DG


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