Black Friday Special: Retail ETFs In Focus

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The 2013 holiday season is just around the corner, and already the U.S. retail sector is gearing up for what could be another make-or-break year for many companies. Many retailers generate significant portions of annual revenues and profit during the holiday months of November and December, with Black Friday and Cyber Monday sales accounting for a significant portion of yearly revenue. And with markets continuing to push to record highs, companies are hoping to finish the year with some holiday cheer [see The Best (And Worst) Performing ETFs For Every Quarter].

A Modest Holiday Shopping Season

According to the National Retail Federation, some 140 million shoppers are expected to visit stores and shop online during Thanksgiving weekend, a slight decrease from last year’s 147 million figure. The NRF has also reported that the average holiday shopper plans to spend only $737.95 this year, a 1.9% decline from last year’s $752.25 budget [see Select Sector SPDR ETFs Head-To-Head].

Analysts at Wells Fargo have also warned of a more “modest” holiday season, estimating that shoppers will increase spending by about 3.7%, the slowest growth rate since 2009. Total holiday sales are now expected to come in at $602 billion this year:

Wells Fargo noted “Holiday sales this year, while marking an increase over last year’s levels, will remain restrained as cautious consumers keep the pace of sales in check. Consumers likely will remain cautious as economic and policy uncertainty factors into their holiday purchase decisions.”

ETFs To Watch

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Black Friday

For those looking to make a play on the biggest shopping season of the year, we outline four retail ETF options that could see some high levels of activity in the next few weeks [see also Free Report: How To Pick The Right ETF Every Time]:

  • SPDR S&P Retail ETF (XRT, A):  With over $893 million in total assets and an average daily trading volume of 3.2 million, this ETF is by far the largest, most popular and most heavily-traded retail fund on the market. XRT offers concentrated exposure to traditional brick-and-mortar retail giants, spreading exposure across about 98 individual holdings. Top holdings include Groupon (GRPN), Shutterfly (SFLY), GameStop (GME), HomeAway (AWAY), Francescas Holdings Corp (FRAN), and Ann, Inc. (ANN) .
  • PowerShares Dynamic Retail Portfolio (PMR, B):  This ETF is part of the PowerShares lineup of “intelligent” ETFs linked to benchmarks that use quantitative analysis in an attempt to outperform traditional cap-weighted indexes. The resulting portfolio is rather shallow with only about 32 holdings, though allocations are nicely spread out across large-, mid- and small-cap firms. Gap (GPS), Kroger (KR), Costco (COST), Wal-Mart (WMT), and Macy’s (M) make up PMR’s top five holdings.
  • Market Vectors Retail ETF (RTH, B+):  Van Eck’s RTH is yet another compelling option, as it charges an expense ratio of only 35 basis points, making it tied with XRT for the cheapest fund in the retail ETF category. The fund’s portfolio consists of only about 25 individual securities, with Wal-Mart, (AMZN) and Home Depot (HD) given the heaviest weightings [see also 10 Questions About ETFs You've Been Too Afraid To Ask].
  • Direxion Daily Retail Bull 3x Shares (RETL, B+):  For those willing to stomach the risk, this leveraged ETF can be a powerful tool, with its 3x exposure allowing investors to make big bets on this year’s holiday shopping season. Currently, RETL’s underlying index’s sector weightings are heavily titled towards hypermarkets and super centers, home improvement, apparel and internet retail equities.

Follow me on Twitter @DPylypczak.

Disclosure: No positions at time of writing.

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