Weak Earnings Hurting Retail ETFs? [Merrill Lynch Retail HOLDRS ETF, SPDR S&P Retail (ETF)]

Shares of one of the leading jewelry retailers, Tiffany, have surged 16% to date as it comfortably topped our earnings estimate by 20 cents and revenue estimate by $59.1 million. Additionally, the company raised its earnings guidance from $4.05-$4.15 to $4.15–$4.25. However, the projection is far below the current Zacks Consensus Estimate of $4.27.

Struggling retailer – JCP – again surprised the market with improved sales and earnings numbers. The departmental store retailer posted loss of $1.16 per share on $2.8 billion in revenues, faring better than the Zacks Consensus Estimate of loss of $1.27 and revenue estimate of $2.7 billion. The stock is up 7.6% following its earnings announcement.

ETFs in Focus

The weak and strong performances by retailers have put retail ETFs in focus for the next few days. Investor seeking to tap the current beaten down prices in a diversified way could consider the following three ETFs. Any of these could be considered solid picks given that these have a favorable Zacks ETF Rank of ‘2’ or ‘3’ and retail fundamentals are improving.

SPDR S&P Retail ETF (NYSEARCA:XRT)

This product tracks the S&P Retail Select Industry Index, holding 105 securities in its basket. It is widely spread across each component as none of these holds more than 1.46% of total assets. About half of the portfolio is dominated by small cap stocks while the rest have been split between the other two market cap levels (read: 3 Small Cap ETFs Outperforming the Russell 2000 Index).

In terms of sector holdings, apparel retail takes the top spot at one-fourth share in the basket while specialty stores, automotive retail and Internet retail have double-digit allocations. The fund has amassed about $680 million in its asset base and trades in heavy volume of nearly 3.2 million shares per day. The ETF charges 35 bps a year in fees. XRT was flat over the past 10 trading sessions and has a Zacks ETF Rank of 2 or ‘Buy’ rating with Medium risk outlook.

Market Vectors Retail ETF (NYSEARCA:RTH)

This fund follows the Market Vectors US Listed Retail 25 Index and holds about 26 stocks in its basket with AUM of $27.5 million. Average daily volume is light at under 39,000 shares while expense ratio is at 0.35%. The product is a large cap centric fund and heavily concentrated on the top 10 holdings with 63.4% of assets with largest allocations to WMT, Amazon.Com (AMZN) and HD.

Sector wise, specialty retail occupies the top position with less than one-third share, followed by double-digit allocation to hypermarkets, drug stores, departmental stores, and health care services. RTH added about 0.8% over the past 10 days and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

PowerShares Retail Fund (NYSEARCA:PMR)

This retail fund provides diversified exposure across various market caps with 39% in large caps, 34% in small caps and the rest in mid caps. This is easily done by tracking the Dynamic Retail Intellidex Index. The fund has accumulated $24.9 million in its asset base while trades in light volume of under 12,000 share a day. The ETF charges 63 bps in fees per year (read: ETFs to Watch on Rotten Whole Foods Earnings).

In total, the product holds 30 securities with moderate concentration of 45.8% across the top 10 holdings. In terms of industrial exposure, food retail takes the top spot at 21.53%, followed by automotive retail (15.89%) and drug retail (13.65%). PMR gained about 2% in the past 10 trading sessions and has a Zacks Rank of 3 with a Medium risk outlook.

This article is brought to you courtesy of Sweta Killa.

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