Tom Lydon on CNBC's "ETF Edge": The Two Faces of Retail

“In this case, it did very well on the upside the last five years, but because it was online-oriented, it got slammed in the recent decline,” Lydon added.

On the other end of the spectrum, XRT provides an equal weighting of variety of retail stores as opposed to the concentrated holdings of RTH. With a 1.2 percent allocation to stores like Lithia, Foot Locker, Kohl’s, Party City, and others.

In 2018, XRT lost 8 percent by losing out on RTH’s Amazon holding. However, it gives investors diversification across the retail sector, but does it do so at the cost of performance?

Like RTH, XRT wasn’t immune to December’s declines.

Tom Lydon on CNBC's 'ETF Edge' - The Two Faces of Retail 2

“With a retail ETF that’s more equal weight, it didn’t have much of a move in the last five years and continues to dwindle, but that doesn’t mean equal weighting or smart beta strategies aren’t bad,” said Lydon.

An Alternative Retail Option

Early indications of a strong holiday shopping season were already evident on Black Friday as online sales reached a record total of $6.22 billion according to Adobe Analytics. That was followed up with Cyber Monday when sales reached a record $7.9 billion, which represented a 19.3 percent increase from a year ago.

The sales increase obviously speaks to the shift of consumer spending habits from brick-and-mortar retail to the convenience of online shopping. Adobe Analytics also reported that half of the $6.22 billion in sales came from mobile devices like smartphones.

This constant year-over-year migration from brick-and-mortar to online was evident as visits to physical retail stores was down for a fifth straight year, according to a Wall Street Journal report. However, the drop in 2018 wasn’t a steep drop-off from 2017 as consumers still use physical stores to purchase items they know are in stock or want to view an item prior to purchasing it online for a better price.
With this shift in consumer habits, investors can look to the ProShares Long Online/Short Stores ETF (NYSEArca: CLIX) to capitalize. CLIX seeks investment results that track the performance of the ProShares Long Online/Short Stores Index, which consists of long positions in the online retailers included in the ProShares Online Retail Index and short positions in the “bricks and mortar” retailers included in the Solactive-ProShares Bricks and Mortar Retail Store Index.

“It’s long online and short big box retailers,” said Lydon.

 For more market trends, visit ETF Trends.