Retail ETFs: Pockets of Strength
July 22nd 2010 at 2:00pm by Tom Lydon
It’s no secret: the retail sector and its exchange traded funds (ETFs) are hurting. Blame high unemployment, a low vote of confidence in the economy and generally tepid consumer spending. But there’s still hope to be had.
There are two areas of consumer spending that are holding up relatively well: spending by those who are scaling back to the basics, and spending by those who have the means to throw around the cash. You can play both types of consumers easily with ETFs.
The best way to access shares that are related to consumer spending is through an ETF. Consumer staples stocks and ETFs are expected to keep pace or outperform the broader market for two reasons, says Monica Gerson for Benzinga. Why?
- We see earnings support from healthy emerging markets sales and steady commodity costs.
- Staples typically outperform the S&P at this stage of the cycle when ISM moves from peak back to 50.
It makes sense, after all, because staples are those items that you simply can’t do without. Toothpaste, toilet paper, household cleaners. Our ETF Analyzer shows several consumer staples ETFs trading right now, and we have a few ideas:
- First Trust AlphaDEX Consumer Staples (NYSEArca: FXG): this fund is up 2.2% in the last week and holds a mix of staples and discretionary companies, including CVS and Walgreens. Holdings such as General Mills and Del Monte give exposure to the trend of cooking at home.
- PowerShares Dynamic Consumer Staples (NYSEArca: PSL): PSL is down slightly over the last five days, but it’s above its long-term trend line right now. It gives well-rounded exposure to companies like Colgate, Heinz, Wal-Mart and Altria- brands and companies the cash-strapped frequently turn to.
- iShares Dow Jones U.S. Consumer (NYSEArca: IYC): Consumers are buying generic in more numbers than ever as they realize that these brands are often just as good as the name brands. This fund gives exposure to companies with solid generic brands: Costco, Target, CVS and Walgreens.
There is also evidence that the rich are contributing a large amount of capital to retail markets, and they’re more likely to do so regardless of the economy, at least for now.
Ron Rowland for Money and Markets has these suggestions for exposure to the wealthy:
- Claymore /Robb Report Global Luxury ETF (NYSEArca: ROB) Holds the stocks of retailers, manufacturers and travel and leisure providers which produce luxury goods and services. Serves the top tier of wealthy, about 0.1% of the population. [The Rich Scale Back.]
- PowerShares Dynamic Leisure and Entertainment (NYSEArca: PEJ) Serves the so-called mass affluent, such a the top 5% of the next step of wealthy. Walt Disney, Starbucks and Cheesecake Factory are a few of the holdings.
For more stories about retail, visit our retail category.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.