S&P's Retail ETF Picks for the Holiday Season | ETF Trends

Black Friday kicked off the holiday shopping season and shoppers will be on the hunt for more deals throughout the holidays. Investors interested in capitalizing on greater consumer activity may start shopping for exchange traded funds that track the retail sector.

According to the National Retail Federation, sales during the Black Friday holiday weekend increased 16% year-over-year. The firm projects total sales for the 2011 season to rise 3% to 4% year-over-year, with a jump in e-commerce sales of around 15%.

Additionally, retail stocks have historically performed best between October and March, showing their highest historical performance in March and November, Michael Souers, S&P Capital IQ Equity Analyst, writes in a research note. Compared to the S&P 500, retail stocks have outperformed in March and February, which usually corresponds with the time the sector announces fourth quarter sales numbers.

“We believe that, for investors willing to seek exposure to retail companies with the benefit of diversification, ETFs merit a closer look,” the S&P analysts said.

The fund research team at S&P Capital IQ searched within the retail sector and narrowed the search to retail ETFs that have Amazon Inc. (NasdaqGS: AMZN), Target Crop. (NYSE: TGT) and Wal-Mart Stores (NYSE: WMT) among the top holding, among other considerations.

“We think these retailers will benefit from the holiday season,” S&P analysts said.

Consumer Discretionary Select Sector SPDR Fund (NYSEArca: XLY), iShares Dow Jones U.S. Consumer Services Sector Index Fund (NYSEArca: IYC) and the Vanguard Consumer Discretionary Index Fund (NYSEArca: VCR) each hold at least two of the three mentioned retailers in their top holdings and also each carry an “overweight” rating from S&P.