Look to Retail ETFs as the Economy, Consumer Spending Recovers

Retail sector-related exchange traded funds are back under the spotlight as the holiday shopping season wraps up, and investors are betting on brick-and-mortar stores to maintain their momentum in anticipation of a full economic recovery in the new year.

The SPDR S&P Retail ETF (XRT), which follows a range of traditional retailers, has increased 13.0% over the past month, and advanced 39.7% year-to-date.

XRT YTD Performance

Some investors are hopeful that more traditional retailers could regain lost ground in the year ahead, betting on a broader economic rebound as vaccines against the coronavirus will spur widespread re-openings across the United States, Reuters reports.

“There’s anticipation of people shopping,” Kim Forrest, chief investment officer at Bokeh Capital Partners, told Reuters. “Wall Street is looking forward to a time when we are not locked down.”

Investors will be closely watching the University of Michigan’s widely followed consumer sentiment index, which remains below pre-pandemic levels but recently pushed higher.

Some also argue that consumer spending could rise from additional stimulus checks to individuals, which is included in a $900 billion coronavirus aid package that Congress is working on, said Alex Ely, chief investment officer of Macquarie Investment Management’s small and mid-cap growth equity team.

Eric Marshall, portfolio manager at Hodges Capital Management, believes brick-and-mortar stores that have withstood the coronavirus pandemic may be on more solid footing next year after competitors like J.C. Penney, J. Crew, Pier 1 Imports and Neiman Marcus declared bankruptcy this year.

“On the back side of this… there could come a period of prosperity,” Marshall told Reuters.

Jason Hans, portfolio manager at BMO Global Asset Management, warned that department stores could resume their underperformance, but certain specialty retailers could catch up once in-store shopping recovers.

“The fundamentals are going to be much better in the second half of 2021 and 2022,” Ely added. “But you want to buy six to nine months ahead of when things are great. Now is the time.”

For more information on the retail sector, visit our retail category.