A Quick Investor Guide To Retail ETFs [SPDR S&P Retail (ETF), Merrill Lynch Retail HOLDRS ETF, PowerShares Dynamic Retail (ETF)]

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April 11, 2014 3:19pm NYSE:PMR NYSE:RTH

retail-shoppingAs a pioneer in retail business, the US provides ample growth opportunities for all types of retail companies. The retail industry covers everything in its scope, ranging from internet catalog sales, auto dealers, convenience stores, vending machines

and clothing; thus dividing retailers into numerous categories.

Retailers of all sizes, including individual direct marketers or direct sellers, small- to medium-sized franchise unit owners, and large “big-box” store operators compete in the U.S.

From a growth perspective, the retail sector is among the leading U.S. industries and employs an enormous workforce. Retailers nowadays are largely concentrating on satisfying customers and enriching their buying experience through new strategies as consumers have become more knowledgeable, inquisitive and choosy.

The latest retail strategies include focusing on Omnichannel retailing, providing personalized in-store experience, adopting mobile wallet apps, reinventing loyalty programs and investing in data analysis to track shoppers. (Read: Time to bet on Consumer Discretionary ETFs?)

Retail is no different from other U.S. industries and is highly dependent on the economy to prosper. Such heightened dependence on the economy and factors like job growth and interest rates indicate that a speedy recovery of the economy is vital for the health of the retail industry.

After high political and economic drama in 2013, the year 2014 opened to a soft start given the not-so-convincing emerging economies and a severe winter that locked consumers indoors. However, following the weather improvement through the second half of February the business seemed to have picked up putting the U.S. economy on the growth path. So far this year, the S&P 500 has gained roughly 0.9%, The Nasdaq Composite Index rose about 0.2%, while the Dow Jones Industrial Average lost 1.1%.

Despite volatility in the indices so far, the economic outlook for 2014 remains positive based on favorable economic data and an improved consumer and business outlook. This view is further supported by the recent Economic Report issued by the White House Council of Economic Advisors on Mar 10, 2014, wherein President Barack Obama’s advisers signaled that the U.S. economy is set to improve in the next two years.

The report suggests that economic strength is on the cards for the U.S. economy as the unemployment rate has bottomed to levels not reached in over five years, fiscal deficits have been reduced by over 50%, the housing market has rebound, manufacturers are adding jobs for the first time since the 1990s and exports are picking up.

Further, the report suggests faster growth in consumer spending in 2014 compared to the 2% rate during the past three years as households continue to substantially lower their debts, thus improving their spending appetite.

However, the recent Conference Board’s data on Consumer Confidence Index reflected a 1.3 points fall to 78.1 in Feb 2014, following a rise in January to 79.4. Meanwhile, the University of Michigan’s Consumer Sentiment survey showed a 0.5% sequential and 5.2% year-over-year improvement to 81.6 in Feb 2014.

Playing the Sector through ETFs

ETFs present a low-cost and convenient way to get a diversified exposure to this sector. See all retail ETFs here.

Below we have highlighted a few ETFs tracking the industry:


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 102 stocks, with the top holdings being Five Below Inc. (FIVE), Conns Inc. (CONN) and ANN Inc. (ANN), representing asset allocation of 1.18%, 1.12% and 1.11%, respectively, as of Mar 26, 2014. The fund’s expense ratio is 0.35%, while the dividend yield is 0.73%. XRT has AUM of $716.4 million as of Mar 26, 2014.

Market Vectors Retail ETF (NYSEARCA: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 with the top holdings being Wal-Mart Stores Inc. (WMT), Amazon.com Inc. (AMZN), and The Home Depot Inc. (HD), representing asset allocation of 10.65%, 10.02% and 7.52%, respectively, as of Mar 26, 2014. The fund’s expense ratio is 0.35% and dividend yield is 1.03%. RTH has managed to attract $24.9 million in assets under management till Mar 26, 2014.

PowerShares Dynamic Retail (NYSEARCA:PMR):

PowerShares Dynamic Retail (PMR), launched in Oct 2005, follows Dynamic Retail Intellidex Index and is made up of 31 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 The Kroger Co. (KR), CVS Caremark Corporation(CVS) and Macy’s Inc. (M), reflecting asset allocation of 5.24%, 5.23% and 5.09%, respectively, as of Mar 26, 2014. The fund’s expense ratio is 0.63%, while the dividend yield is 0.84%. PMR has managed to attract $24.5 million in assets under management as of Nov 21, 2013.

This article is brought to you courtesy of Eric Dutram.

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