Retail stocks and the relevant exchange traded funds have recently been consumer discretionary laggards. Over the past three months, the SPDR S&P Retail ETF (NYSE: XRT) is off 5.8 percent.
Making that loss look all the more ominous, particularly in the midst of holiday shopping season, is that XRT is down nearly six percent during a period in which the S&P 500 has gained more than three percent. The Consumer Discretionary Select Sector SPDR (NYSE: XLY), the largest consumer discretionary ETF and home to plenty of retailers, has also been notably better than XRT, rising 2.2 percent over the past 90 days.
There is a way for investors to survive retail doldrums and thrive this holiday shopping. It is merely a matter of focusing in the right places.
“Given how long oil prices have been this low the conference is very timely as it will reinforce where and how consumers are spending their savings,” said founder Neil Azous in a note out Monday. “The two biggest trends within this sector are that consumers are 'spending on experiences versus things' and shifting preferences about where they buy.”
The long experiences trade actually turns out to be great news for XLY because, as Azous notes, includes being long darling stocks such as Amazon.com Inc. (NASDAQ: AMZN). Investors should also look to be long home improvement and amusement park experiences. They should also look to channel their inner athlete with Nike Inc. (NYSE: NKE) and Under Armour Inc. (NYSE: UA).
Combined, Amazon Dow components Nike, Walt Disney Co. (NYSE: DIS) and Home Depot Inc. (NYSE: HD) along with Lowes Cos. (NYSE: LOW) represent nearly a third of XLY's weight. XRT houses many of the same stocks as XLY, but XRT is an equal-weight ETF, meaning the chances of just one or two stocks lifting the fund are scant.
“Short SPDR S&P Retail ETF (XRT) versus long SPDR S&P 500 ETF Trust (SPY). As you can see, last week the XRT/SPY ratio broke the long-term 50% Fibonacci retracement level. The current weakness in the ratio is also the most pronounced since the Global Financial Crisis,” said Azous.
The PowerShares Retail Portfolio (NYSE: PMR) is another retail ETF that has plenty of exposure to the “experience” trade. Although PMR is almost evenly split between consumer staples and discretionary names, the ETF does devote a combined 21 percent of its weight to five stocks that qualify as part of the experience trade highlighted by Azous.
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