Caution Still Warranted With Retail ETFs

With the SPDR S&P Retail ETF (NYSEArca: XRT), the largest retail-related exchange traded fund, already down 10% year-to-date, it is not surprising that some retail analysts are advising a cautious approach to the downtrodden sector.

XRT’s rival, the VanEck Vectors Retail ETF (NYSEArca: RTH), is up 5.7% year-to-date, a gain owed in large part to that ETF’s significant allocation to high-flying Inc. (NASDAQ: AMZN).

Adding to the concern for an ETF such as XRT is the fact that the broader consumer discretionary sector, which includes retail, is in the middle of its seasonally strong period. In fact, there are another six or seven weeks remaining in the strongest period of the year for the discretionary sector, but XRT is languishing.

Oppenheimer analysts “write that the backdrop for hardline retailers is likely to continue to be challenging, given spotty spending, high valuations, and overly optimistic Street estimates,” reports Teresa Rivas for Barron’s. “They note that in May and June, real personal consumption expenditures were up anemic amounts. And of course there is the omnipresent threat from Amazon.”