The retail exchange traded fund SPDR S&P Retail ETF (XRT) is up 16% year-to-date but analysts warn a consumer spending slowdown could be in the works. Investors who want to take a more defensive posture can consider a shift into consumer staples ETFs to capture any shift in spending.
“This particular corner of the market has been riding strong trends that have left it in an enviable position to open up May. Solid data on the consumer spending front—which showed an increase of 3.5% year-over-year—and a high level of consumer sentiment both suggest that spending will not be slowing down anytime soon,” reports Eric Dutram for Zacks.
Despite the positive numbers, rising home prices and positive retirement portfolio values have provided a band-aid for the American consumer, which has contributed to a spike in retail spending, reports Gary Gordon for ETF Expert. This is likely a “temporary wealth effect” and analysts do not expect this to last. [Retail ETFs Tick Up on Higher Sales]
The recent hike in payroll taxes will start to hit the wallets of U.S.consumers. Despite the steady performance of XRT, the ETF has experienced a loss of 20% in outflows. Gordon reports that profit-taking investors are already convinced that the auto sector, specialty retail, and apparel areas of the market will struggle for revenue in the near future.
Consumer staples ETFs such as the SPDR Select Consumer Staples (XLP) are an alternative choice for those investors who want retail exposure in their portfolio, but are not convinced the U.S. consumer is going to keep spending in specialty retail areas. [U.S. ETFs Attract $53 Billion in First Quarter: Morningstar]
The consumer staples sector is known for decent dividend yields, so the sector is currently trading at one of the highest multiples within the decade. XLP has a dividend yield of 2.4% and is trading at a 20% premium to the SPDR S&P 500 (SPY) , reports Gordon.[Defensive Consumer Staples ETFs for Yield]
Other Retail ETFs:
SPDR S&P Retail ETF
Tisha Guerrero contributed to this article.
- Gary Gordon