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