With the holiday shopping season officially here and Christmas just a few weeks away, it would seem logical that this is the time of year to embrace retail stocks and exchange traded funds, such as the The SPDR S&P Retail ETF (NYSEArca: XRT).
However, XRT’s laggard status could spell trouble for XRT and rival retail exchange traded funds because this is the time of year these funds typically rise. Morgan Stanley projects a 1.2% growth in sales this year, compared to 2.8% the previous year. Rivals to XRT include the Market Vectors Retail ETF (NYSEArca: RTH) and the PowerShares Dynamic Retail Portfolio (NYSEArca: PMR).
Additionally, investors should not bank on a seasonality being a catalyst to drive retail ETFs higher.
“Not to a be a Scrooge, but such retail-oriented ETFs tend to underperform the market during this time. In the nine years since retail ETFs began to trade, investors would have been better off just sticking with their boring old Standard & Poor’s 500-stock index fund,” report Eric Balchunas and Tracy Alloway for Bloomberg.
PMR follows a factor-based index, which weights components based on price momentum, earnings momentum, quality, management action and value. Top holdings include O’Reilly Automotives (NasdaqGS: ORLY), L Brands (NYSE: LB) and Costco Wholesale (NasdaqGS: COST).
The Commerce Department calculated that retail sales was up 0.1% last month, compared to economists’ forecasts for an increase of 0.3%, after being unchanged in September. [America’s Less Dressed: 3 Factors Weighing On Retail ETFs]
RTH covers the 25 largest U.S. companies involved in retail distribution, wholesalers, on-line, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers. Top components include Amazon (NasdaqGS: AMZN), Home Depot (NYSE: HD) and Wal-Mart (NYSE: WMT).
Paul Hickey of Bespoke Investment Group “looked at the XRT, the ETF that tracks the performance of the retail group in the S&P 500. Hickey noted that since 2000, the XRT tends to outperform the broader markets in the month leading up to Thanksgiving. However, immediately following Thanksgiving, those stocks tend to fall, according to Hickey’s chart work,” reports CNBC.
“As is so often the case in markets, investing in a retail ETF over the long term may prove a jolly idea, but trying to time a play for a few weeks in late November and December is likely to put some proverbial coal in your portfolio,” adds Bloomberg.
SPDR S&P Retail ETF
