Investors Need To Choose Wisely When Shopping For A Retail ETF

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February 18, 2010 5:18pm ETF BASIC NEWS NYSE:RTH

retailRetailers are set to unleash their fourth quarter earnings on the market, with Wal-Mart’s(WMT) report due before the market opens on Thursday. Next week, Target (TGT), Home Depot


 (HD) and Lowe’s (LOW) report as well,” Don Dion Reports From The Street.

Dion goes on to say, “Investors can play these reports with an ETF that has large positions in these companies, or play the broader impact of their reports with a more diversified retail ETF. While retail stocks are found in many consumer ETFs, investors looking for a pure play have limited options due to liquidity. In the end, there are just two funds worth considering: Retail HOLDRS (RTH) and SPDR S&P Retail (XRT).”

“For investors searching for a diversified ETF, the choice is XRT. This fund has 62 holdings. Its No. 1 holding Sears (SHLD) accounts for less than 2% of the fund’s assets and the smallest holding, Best Buy (BBY) has 1.3% of assets. Assets are rebalanced quarterly and the expense ratio is 0.35%. Besides spreading assets evenly across all the holdings, the positions themselves are spread across the retail universe. Its top 10 holdings range from the aforementioned Sears to Children’s Place (PLCE), Netflix (NFLX), Family Dollar (FDO), Supervalu (SVU) and Officemax (OMX). Individual investors with limited capital would have a hard time replicating the holdings in this ETF, in addition to holding their expenses low. That’s not the case with the Retail HOLDRS (RTH), which has only 18 holdings and very unevenly distributed assets. Wal-Mart accounts for 20.8% of assets, followed by 12.8% in Home Depot, 8.7% in Amazon (AMZN), 8.6% in Target, 6.9% in Walgreen and 6.9% in Lowe’s,” Dion Reports.

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Here are some more details on the 2 retail ETFs below:

The investment (XRT) seeks to replicate as closely as possible, before expenses, the performance of an index derived from the oil and retail segment of a U.S. total market composite index. The fund uses a passive management strategy to track the total return performance of the S&P Retail Select Industry index. The index represents the retail sub-industry of the S&P Total Market index.The fund is nondiversified.

TOP 10 HOLDINGS ( 17.64% OF TOTAL ASSETS)  
 
Company Symbol % Assets
Aeropostale Inc (ARO) 1.69
Carmax Inc. (KMX) 1.84
The Children’s Place Retail Sto (PLCE) 1.8
Dick’s Sporting Goods, Inc (DKS) 1.72
The Dress Barn, Inc. (DBRN) 1.74
Foot Locker, Inc. (FL) 1.83
HSN, Inc. (HSNI) 1.79
Jo-Ann Stores, Inc. (JAS) 1.75
Sears Holdings Corporation (SHLD) 1.79
Tractor Supply Company (TSCO) 1.69

The investment (RTH) seeks to diversify your investments in the retailing industry through a single, exchange-listed instrument representing your undivided beneficial ownership of the underlying securities. The trust holds securities issued by specified companies that, when initially selected, were in the retailing industry. Except when a reconstitution event, distribution of securities by an underlying issuer or other event occurs, the group of companies will not change. There are currently 20 companies included in the Retail HOLDRS.

TOP 10 HOLDINGS ( 83.00% OF TOTAL ASSETS)  
 
Company Symbol % Assets
Amazon.com, Inc. (AMZN) 10.03
Best Buy Inc (BBY) 3.78
Costco Wholesale Corporation (COST) 5.04
CVS Caremark Corporation (CVS) 4.8
Home Depot Inc (HD) 12.32
Lowe’s Companies Inc (LOW) 6.97
Target Corp (TGT) 8.24
TJX Companies, Inc. (TJX) 3.9
Wal-Mart Stores, Inc. (WMT) 20.49
Walgreen Co. (WAG) 7.43

Chart for SPDR S&P Retail (XRT)

 

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