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Don't Be Deceived By This Retail ETF's Declines

ETF Professor

Retail stocks and the related exchange traded funds are off to impressive starts in 2019. The SPDR S&P Retail ETF (NYSE: XRT), one of the most widely followed retail ETFs, is higher by 9.51 percent. By comparison, the ProShares Decline of the Retail Store ETF (NYSE: EMTY) is lower by almost 8 percent.

What Happened

EMTY, which debuted in November 2017, “seeks capital appreciation from the decline of bricks-and-mortar retailers through short exposure (-1x) to the Solactive-ProShares Bricks and Mortar Retail Store Index,” according to ProShares.

In other words, EMTY is the ideal ETF for investors to bet on declines of brick-and-mortar retailers with. Clearly, EMTY is not performing well year-to-date, but data suggest some brick-and-mortar retailers are still struggling. Since the start of the year, nearly 2,200 store closures have been announced and more could be coming.

“That's up 23 percent from the number of announcements documented at the same time last year,” CNBC reports, citing Coresight Research.

Why It's Important

There are likely more store closures coming this year, following a slew of such actions last year.

“In 2018, Coresight tracked 5,524 store closure announcements in the U.S., which was down more than 30 percent from a record 8,139 closures announced in 2017,” according to CNBC.

E-commerce is an immense threat to brick-and-mortar retailers.

“E-commerce is threatening to take over retail as consumer habits change, shopping moves online, and physical stores struggle to remain viable. With this disruption comes opportunity,” according to ProShares.

During the holiday shopping season (November through the end of the year), online retail sales swelled to 6 billion from 8.2 billion a year earlier and with mobile shopping growing, online retailers have more avenues to reach shoppers.

Even if investors do not want to short traditional retailers via EMTY, there are other avenues for tapping the e-commerce boom. The ProShares Online Retail ETF (NYSE: ONLN) is up 19.51 percent this year, or more than double XRT's gain.

What's Next

Still, there is some allure with EMTY, particularly because there remain too many retail stores in the U.S. Analysts expect store count shrinkage for department stores and apparel retailers, segments that combine for over 40 percent of EMTY's weight.

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