The Complete Guide to Retail ETFs
As a pioneer in retail business, the United States provides ample growth opportunities for all types of retail companies. From growth perspective, retail ranks among the dominant U.S. industries and employs an enormous workforce. Retail sales represent approximately 30% of consumer spending, which itself accounts for more than two-thirds of the economy.
The U.S. economy is sending out signals of growth driven by lower oil prices and an improved job market. In July, 215,000 people were hired, reflecting improved employment prospects. According to the recent data from Bureau of Labor Statistics, the unemployment rate for July was constant at 5.3% reached in the previous month, its lowest level since Sep 2008. (Read: A Look at Cheap Retail ETFs Post Q2 Earnings)
This improvement in the job scenario is likely to boost consumer confidence and provide them with a sense of security when it comes to purchasing power, thereby increasing consumer spending. According to a recent Conference Board data, the Consumer Confidence Index rebound in August increased to 101.5 from July’s reading of 91.0.
Moreover, consumer spending increased 3.1% in the second quarter from the initial estimate of 2.9%, and also improved considerably from the first quarter’s spending rate of 1.8%. July retail sales growth of 0.6% also validates the pickup in consumer activity. (Read: 3 Sector ETFs for Revenue Growth Potential)
Additionally, real GDP expanded at a 3.7% seasonally adjusted annual rate in the second quarter of 2015, according to the “second” estimate released by the Bureau of Economic Analysis. This fared way better than the “advance” estimate of a 2.3% increase and 0.6% growth recorded in the first quarter. The positive revision in GDP numbers reflects a rise in consumer spending, higher business spending, increased investment in intellectual property products and larger inventory levels at businesses.
An expected rebound in the economy, combined with declining unemployment rate, cheap gasoline prices, higher consumer confidence and improving consumer spending, the retail space is bubbling with optimism.
Playing the Sector through ETFs
ETFs present a low-cost and convenient way to get a diversified exposure to this sector. Below we have highlighted a few ETFs tracking the industry:
SPDR S&P Retail (XRT):
Launched in Jun 2006, SPDR S&P Retail (XRT) is an ETF that seeks investment results corresponding to the S&P Retail Select Industry Index. This fund consists of 103 stocks, the top holdings being Netflix Inc. (NFLX), Amazon.com Inc. (AMZN) and Casey's General Stores Inc. (CASY), representing asset allocation of 1.33%, 1.29% and 1.22%, respectively, as of Aug 28, 2015. The fund’s gross expense ratio is 0.35%, while its dividend yield is 1.04%. XRT has $1,118 million of assets under management (AUM) as of Aug 31, 2015.
Market Vectors Retail ETF (RTH):
Initiated in Dec 2011, Market Vectors Retail ETF (RTH) tracks the performance of Market Vectors US Listed Retail 25 Index. The fund comprises 26 stocks, the top holdings being Amazon.com Inc. (AMZN), Home Depot Inc. (HD) and Wal-Mart Stores Inc. (WMT), representing asset allocation of 12.78%, 8.66% and 7.75%, respectively, as of Aug 31, 2015. The fund’s net expense ratio is 0.35% and dividend yield is 0.39%. RTH has managed to attract $216.9 million in AUM till Aug 31, 2015.
PowerShares Dynamic Retail (PMR):
PowerShares Dynamic Retail (PMR), launched in Oct 2005, follows the 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 O'Reilly Automotive Inc. (ORLY), The Home Depot Inc. (HS) and CVS Health Corp. (CVS), reflecting asset allocation of 5.66%, 5.34% and 5.24%, respectively, as of Sep 1, 2015. The fund’s net expense ratio is 0.63%, while its dividend yield is 0.61%. PMR has managed to attract $24.7 million in AUM as of Aug 31, 2015.
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SPDR-SP RET ETF (XRT): ETF Research Reports
MKT VEC-RETAIL (RTH): ETF Research Reports
PWRSH-DYN RETL (PMR): ETF Research Reports
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