The SPDR S&P Retail ETF (NYSEArca: XRT) has lagged broader benchmarks this year, but with holiday shopping season here, it could be time for retail stocks and exchange traded funds to snap out of their funks.
Economic data seems to support more upside for retail ETFs, as highlighted by last week’s better-than-expected October jobs report. While the retail sector has been rebounding over the past month, Morgan Stanley does not anticipate a jolly season for retailers. The investment bank expects holiday sales growth to slow this year, arguing that while consumers have plenty of cash, they are not that motivated to spend, reports Julie Verhage for Bloomberg.
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).
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.
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).
Improved performance for the discretionary sector has bolstered an array of related sub-sectors, including specialty retail. Clothing, electronics and automobiles will likely see prices decline as the stronger dollar permeates the economy. The cheaper prices could help attract greater demand, bring more traffic into stores and bolster the retail space.
Home improvement retailers “will likely experience mid-single digit revenue growth in the next fiscal year according to S&P Capital IQ Equity Analyst Efraim Levy, driven by new store additions and the benefits of a recovery in the housing market and improving consumer confidence,” according to S&P Capital IQ.
SPDR S&P Retail ETF
