Black Friday is just days away, and that means two things:
- Several people are just days away from becoming YouTube sensations by fist-fighting over a 46-inch Panasonic.
- You’ve already been bombarded by a number of “Buy retail!” stories pegged to (you guessed it) Black Friday.
But as kitschy as it might seem, don’t sneer — there are some numbers behind the hysteria.
Consumer spending and consumer confidence trends are looking up heading into the all-important holiday season. Retailers are pretty confident, too, with 36% of businesses expecting to add more holiday payroll this year than in 2011.
Also, FactSet recently released its own rosy pre-Black Friday report: It expects a boffo Q4 for retail, and it says 10 of the S&P 500’s 13 retail sub-industries will see earnings growth in the period, including huge advances in apparel retail (27.5%), drug retail (18.1%) and specialty stores (11.7%).
And wouldn’t you know it? The past few years have shown Black Friday really is a decent time for investors to jump into retail.
Broadly speaking, the November-March period has been especially kind to retail stocks of late. The table below shows the performance for five retail ETFs (including the leveraged RETL) and the S&P 500 for the past few November-March and April-October periods:
Why the outperformance? Perhaps because between November and March retail stocks have two primary drivers: Black Friday excitement (and all the data leading up to it), then the reporting of the all-important Q4 numbers, usually between February and March.
That said, this is Nov. 21, not Nov. 1. How do the numbers look for people who bought in around Black Friday and held through March?
The difference in returns isn’t as exaggerated, but there’s clearly still a sweet spot — which means you still have time to get in.
Many will suggest throwing the proverbial darts — heck, FactSet itself says Urban Outfitters (NASDAQ:URBN) is set to nearly double its earnings year-over-year and that Abercrombie & Fitch (NYSE:ANF) and Gap (NYSE:GPS) will celebrate banner quarters.
But if you’re not willing to take a gamble on whose cami sweater will go bonkers this season (and I’m not), you might be better off making a diversified bet on the whole retail enchilada with a retail ETF. And with a good number of them out there, you can tailor your pick to your tastes.
Here’s a closer look at the five ETFs we discussed above:
SPDR S&P Retail ETF (NYSE:XRT)
This is about as “safe,” diversified and true as a retail play gets. The XRT tracks an equal-weighted index of retail stocks. That means rather than one stock making up 10% of the fund, then another 5%, and another 0.2%, and so on, all stocks have a (very close to) equal effect on the fund’s performance.
XRT has 94 different retail holdings, which further spreads out the risk. About 75% are “cyclical” consumer stocks like OfficeMax (NYSE:OMX), GameStop (NYSE:GME) and Abercrombie, though it also holds defensive stocks like Kroger (NYSE:KR) and The Fresh Market (NASDAQ:TFM).
Expense Ratio: 0.35%