Retail repudiation is a prominent equity market theme in 2017. Just look at the SPDR S&P Retail ETF (NYSEArca: XRT), the largest retail-related exchange traded fund, which is down 12% year-to-date. Making matters worse, it is getting harder to forecast when XRT and traditional brick and mortar retail stocks will rally in earnest.
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.
“News on Monday that Amazon was rolling out its own “Geek Squad” similar to that of Best Buy sent shares of the electronics company tanking 6 percent, while Costco also fell more than 1 percent on a downgrade by BMO, which saw the Amazon-Whole Foods deal as a threat to the retailer. And unfortunately, the charts don’t look any better for the retail space,” reports CNBC.
That is just the latest example of how e-commerce is eating traditional retailers’ respective lunches. The trend away from traditional department stores and apparel retailers to online shopping destinations should benefit the Amplify Online Retail ETF (NasdaqGM: IBUY), which debuted last year. IBUY, which is comprised of global companies that generate at least 70% of revenue from online or virtual sales, has been one of the best-performing retail ETFs since its inception.
While XRT is sagging this year, IBUY is up more than 30%. Some other ETF issuers are considering ETFs that offer risk-tolerant traders new avenues to playing the slump in traditional retailers. ProShares, the largest issuer of inverse and leveraged ETFs, has filed plans for three ETFs that are aimed at the current lay of the land in the retail space.
“The ProShares UltraShort Bricks and Mortar Retail fund and ProShares UltraPro Short Bricks and Mortar Retail fund will seek to use derivatives to generate daily returns of two or three times the inverse of an index comprising the most at-risk U.S. retailers,” reports Bloomberg.
The Bloomberg article also notes that ProShares could introduce an ETF that holds long positions in e-commerce providers while also holding short positions in brick and mortar retailers.
For more information on the consumer sector, visit our consumer discretionary category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.