Three ETFs For This Holiday Season

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November 29, 2013 3:09pm NYSE:RCD NYSE:RTH

retail etfWith many retailers reporting strong traffic on the Thanksgiving day and Black Friday morning, retail stocks and ETFs are in focus now. As economic and political disarray, sluggish job scene, unfavorable calendar shifts and weak consumer


confidence prevail, the retailers are hoping for perked-up holiday season sales. For many retailers, holiday season sales account for a significant proportion of the annual revenues.

Mixed Readings on Consumer Sentiment 

The Consumer Confidence Index measured by the Conference Board– a barometer of the U.S. consumer health – dropped to 70.4 in November from a revised 72.4 and lower than the consensus estimate of 72.6 . This was the index’s lowest reading since April.

On the other hand, the Thomson Reuters/University of Michigan index of consumer sentiment increased to 75.1 for November, up from 73.2 in October and higher than the consensus estimate of 73.5. The surging stock market, higher home prices and a healing labor market are the main factors that may be boosting consumer confidence.

Sales Outlook ‘Not Bad’

Retail sales for the month of October came in higher than expected suggesting that consumers may not cut back much on spending and still have an appetite to open up their pocketbooks this holiday season (read: Is This ETF a Better Bet in the Consumer Space?).

According to the data compiled by National Retail Federation (NRF), retail sales are expected to grow 3.9% in November and December. This is higher than 3.5% growth seen in the last holiday season and average growth of 3.3% over the past decade. In addition, online sales could rise as much as 15% in the last two months of 2013.

However, 2013 has six fewer shopping days between Black Friday and Christmas when compared to last year. Additionally, the number of full weekends will also be four, less than five last year. Weekends generally witnessed the maximum shopping traffic.

Promotional Offers Drive Sales

Given the shortened holiday season, retailers are luring customers with promotional activities and holiday discounts.

The world’s largest retailer, Wal-Mart (WMT), kick started its online deals on November 1, a month earlier than usual. The company is also offering free shipping for a $50 plus order on nearly 99% of the online items, up from 15% last year. This would help Wal-Mart to achieve $10 billion in global e-commerce sales this year.

Others retailer also joined the league of deep discounts. The online e-commerce behemoth Amazon (AMZN) rolled out more-than-ever holiday offers on November 1. The company also launched two “Deals of the Day” offers every day through December 22 for the first time.

Target (TGT) extended its price-match policy than usual and expanding its “buy online, pick up in store” service to all U.S. stores on the same day. Toys ‘R’ Us unveiled offers for loyalty customers who could avail Black Friday deals two days in advance.

Many retailers opened their stores on Thanksgiving Day for the first time.

How to Play

In such a backdrop, a look at the consumer space could be worthwhile. Investors seeking to tap the holiday promotional benefits could consider the following ETFs:

Market Vectors Retail ETF (NYSEARCA:RTH)

This fund provides exposure to the 26 largest retail firms by tracking the Market Vectors US Listed Retail 25 Index. The top three holdings include WMT, AMZN and Home Depot (HD) which combine to take up nearly 25% of assets.

The ETF has a certain tilt toward growth stocks, accounting for half of the portfolio, while sector wise, specialty retail has one-third share. Other sectors such as hypermarkets, departmental stores and healthcare services take double-digit exposure.

The product has amassed $51.6 million in its asset base and charges 35 bps in annual fees. Volume is low as it exchanges nearly 49,000 shares per day in hand. The fund gained over 35% in the year-to-date time frame and has a further room for upside given the Zacks ETF Rank of 2 or ‘Buy’ rating with a ‘Low’ risk outlook.

Vanguard Consumer Discretionary ETF (NYSEARCA:VCR)

This ETF follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and provides exposure to the broad consumer discretionary sector. This is by far the cheapest choice in the space, charging investors 14 bps a year in fees while having solid volume levels. The product has managed $1.2 billion in AUM so far.

In total, the fund holds a large basket of 373 stocks with 74% allocated to large caps while mid and large caps take the remainder. The product is widely spread across a number of sectors and securities with a definite tilt toward growth stocks. Each security holds less than 5% of total assets with Comcast (CMCSA), AMZN and HD being the top three holdings (read: all the Consumer Discretionary ETFs here).

From a sector look, specialty retail accounts for one-fifth share while movies & entertainment, cable & satellite, restaurants and internet retail make up for nearly 10% each.  The fund added nearly 36% so far this year and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a ‘Medium’ risk outlook.

Guggenheim S&P Equal Weight Consumer Discretionary ETF (NYSEARCA:RCD)

This fund offers exposure across the consumer discretionary market with an equal weight methodology. It tracks the S&P 500 Equal Weight Index Consumer Discretionary index and holds of 83 securities in its basket. The fund has amassed $125.5 million in AUM while volume is a light. It charges a higher annual fee of 50 bps from investors.

Though large caps make up for 67% share in the fund’s portfolio, mid caps take the remaining portion and only 2% goes to small caps. Furthermore, the fund focuses on growth stocks with more than half exposure.

In terms of industries, specialty retail takes the top spot at roughly one-fifth of the total, followed by modest allocations to media and hotel restaurants. RCD is up over 36.5% in the year-to-date time frame and is poised to move higher further. This is especially true as the ETF has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a ‘High’ risk outlook.

This article is brought to you courtesy of Eric Dutram.


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