Wal-Mart’s Wild Ride Drags Staples ETFs Lower

ETF Trends

Shares of Dow component Wal-Mart (WMT), the world’s largest retailer, are down about 1.5% in late trading Wednesday, but that does not tell the whole story. The stock has traded in a range of about $2.40, an uncommonly wide range for a stock with a beta of just 0.39.

Earlier Wednesday, news broke that Wal-Mart was cutting orders from suppliers for the current quarter and the fourth quarter in an effort to address rising inventories. Last week, an ordering manager at the company’s Bentonville, Arkansas, headquarters described the pullback in an e-mail to a supplier, who said others got similar messages, reports Renee Dudley for Bloomberg.

That news sent Wal-Mart shares tumbling while doing the same to major consumer staples ETFs that have large allocations to the stock. For example, the $5.33 billion Consumer Staples Select Sector SPDR (XLP) is trading near its lows of the day even as Wal-Mart shares have rebounded a bit after the company told CNBC the Bloomberg report was “misleading.”

XLP, the largest staples ETF by assets, has an 8% weight to Wal-Mart, making it the ETF’s fourth-largest stock. The Vanguard Consumer Staples ETF (VDC) , the cheapest staples ETF with annual fees of 0.14%, is also trading near its lows of the day. Wal-Mart is also VDC’s fourth-largest holding with a weight of 7.4%.

Unfortunately for staples ETFs, the Wal-Mart inventory scare was not confined to that company. The news dragged rivals Costco (COST) and Target (TGT) lower as well. Costco is a top-10 holding in both XLP and VDC.

The Market Vectors Retail ETF (RTH) , which allocates 18.3% of its combined weight to Wal-Mart, Target and Costco, is trading lower on nearly triple the average daily volume.

Consumer Staples Select Sector SPDR

View photo

.

XLP925

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

View Comments (1)