Black Friday and Cyber Monday are two of the biggest days for the retail sector in the year, and investors can gain exposure to the start of America’s holiday shopping spree through consumer sector-related exchange traded funds.
When it comes to ETFs, investors can choose between the retail sector or consumer discretionary sector to gain exposure to consumers, the largest contributing factor to U.S. economic growth.
Retail ETFs follow companies that sell retail merchandise, which includes brick-and-mortar retailers that shoppers can visit on foot, along with online merchants through a click of a button.
Consumer discretionary ETFs track companies that sell nonessential goods and services, including apparel, automobiles, consumer services, consumer durables, media and retailers.
Investors who are interested in consumer sector funds can take a look at a number of related ETFs, including:
First Trust Dow Jones Internet Index Fund (NYSEArca: FDN)
YTD gain: 43.3%
Comment: American consumers are changing the way they shop, utilizing online sources to check prices. As a result, more are turning to online retailers, and e-commerce has expanded on websites like Amazon (NasdaqGS: AMZN) and eBay (NasdaqGS: EBAY), which make up 9.0% and 5.1% of FDN’s portfolio, respectively. The PowerShares NASDAQ Internet Portfolio (NasdaqGM: PNQI), which has gained 53.7% year-to-date, provides similar exposure to internet stocks, including 9.5% in AMZN and 7.8% in EBAY.
Market Vectors Retail ETF (NYSEArca: RTH)
YTD gain: 39.0%
Comment: RTH is the largest retail-oriented ETF. The fund tracks 25 of the largest U.S.-listed retail companies, including significant exposure to Amazon 9.1%, Wal-Mart (NYSE: WMT) 8.3% and Home Depot (NYSE: HD) 7.6%. [Retail ETFs Could Find Coal as Bellwether Wal-Mart Stumbles]
SPDR S&P Retail ETF (NYSEArca: XRT)
YTD gain: 41.9%
Comment: The State Street SPDR ETF provides a more equal-weight approach to the retail sector stocks, with the largest holding Rite Aid (NYSE: RAD) at 1.6% of the portfolio. Apparel retail stores make up the largest segment of the portfolio at 28.2%, followed by specialty stores at 16.4%.
Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (NYSEArca: RCD)
YTD gain: up 39.7%
Comment: RCD specifically follows an equal weight methodology, but targets consumer discretionary goods on top of other retailers, including automobiles hotels, restaurants, leisure and entertainment industries. The largest sub-sectors include specialty retail 20.6% and media 18.9%.
PowerShares S&P SmallCap Consumer Discretionary Portfolio (NYSEArca: PSCD)
YTD gain: 46.8%
Comment: PSCD tracks smaller companies in the consumer discretionary space. Specifically, the ETF includes small-cap value 45.5%, small-cap growth 44.9%, mid-cap value 2.3% and mid-cap growth 7.3%.
First Trust Consumer Discretionary AlphaDEX Fund (NYSEArca: FXD)
YTD gain: 40.2%
Comment: The First Trust ETF is backed by a type of “smart-beta,” “enhanced” index that ranks members of the Russell 1000 based on growth factors, like “three, six and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets,” according to First Trust.
Fidelity MSCI Consumer Discretionary Index (NYSEArca: FDIS)
Gain since inception: 2.7%
Comment: Fidelity launched its sector ETFs in October. FDIS is the newest competitor in a crowded arena, going up against Consumer Discretionary Select Sector SPDR Fund (NYSEArca: XLY), which is up 38.9% year-to-date, and Vanguard Consumer Discretionary ETF (NYSEArca: VCR), which gained 39.7% year-to-date. However, FDIS is the cheapest of the lot, with an expense ratio of 0.12%, compared to 0.14% for VCR and 0.18% for XLY.
PowerShares Dynamic Retail Portfolio (NYSEArca: PMR)
YTD gain: 40.0%
Comment: The “smart-beta,” “fundamental” PMR follows companies based on investment criteria, such as price momentum, earnings momentum, quality, management action, and value.