‘Tis the season for holiday shopping — and for investors to set their eyes on solid consumer discretionary stocks and exchange-traded funds (ETFs). The consumer discretionary group is the fourth-largest sector in the S&P 500, so naturally, there are a number of broad plays. But you want tactical, which means you want pure retail ETFs.
Beyond seasonality, recent data suggests that retail ETFs may be poised to offer investors upside through year-end and into the first quarter of 2017. The Commerce Department recently said retail sales jumped 0.8% last month, beating economists’ expectations calling for an increase of 0.6%. And retail sales climbed 1% in September after being upwardly revised from growth of 0.6%.
Investors can play the themes of rising retail sales and expectations for robust holiday sales via several retail ETFs, including prosaic, standard fare such as the SPDR S&P Retail (ETF) (NYSEARCA:XRT) and the VanEck Vectors Retail ETF (NYSEARCA:RTH).
However, there are other, more sophisticated retail ETFs investors can consider for increased tactical exposure during the holiday shopping season.
Here are a few retail ETFs that go beyond the traditional.
Retail ETFs for the Holidays: PowerShares Retail Portfolio (PMR)
Expenses: 0.63%, or $63 annually on every $10,000 invested
Many of 30 holdings that comprise the PowerShares Retail Portfolio (NYSEARCA:PMR) lineup are found in rival ETFs such as the aforementioned RTH and XRT.
However, the big difference in PMR and competing retail ETFs is how the PowerShares fund weights its components.
PMR is a true smart-beta ETF, eschewing traditional market cap weighting and even the equal-weight methodology used by XRT. PowerShares Retail Portfolio follows the Dynamic Retail Intellidex Index, which “evaluates companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value.”
PMR’s holdings can run the gamut of department stores, discount stores, warehouse clubs, superstores and specialty stores, including apparel, electronics, accessories and footwear stores.
The retail ETF’s top 10 holdings, a group that combines for about 46% of PMR’s weight, includes familiar names such as Walgreens Boots Alliance Inc (NASDAQ:WBA), Ross Stores, Inc. (NASDAQ:ROST) and high-flying Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA).
Retail ETFs for the Holidays: Amplify Online Retail ETF (IBUY)
Expenses: 0.65%
The Amplify Online Retail ETF (NASDAQ:IBUY) debuted in April, making it the newest member of the retail ETF fray. But age or lack thereof does not diminish IBUY’s potential potency as a credible play among retail ETFs.
IBUY tracks the EQM Online Retail Index — a rules-based benchmark “comprised of a diverse group of companies that generate at least 70 percent of their revenue from online and virtual retail sales.”
As its name implies, IBUY is a spin on the future of retail ETFs and retailing itself. IBUY’s lineup of 42 stocks is comprised of online retailers, but it’s not limited to U.S. companies. For example, this retail ETF holds shares of well-known Chinese e-commerce firms such as Alibaba Group Holding Ltd (NYSE:BABA) and JD.com Inc (ADR) (NASDAQ:JD). That is in addition to U.S. e-commerce juggernauts such as Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY).
“The growth rate of online retail sales versus brick and mortar sales has been significant. IBUY offers a compelling opportunity for investors to capitalize on this trend,” said Christian Magoon, founder and CEO of Amplify ETFs, when IBUY debuted.
IBUY is up 9.5% since coming to market, or more than quadruple the returns offered by the largest consumer discretionary ETF over the same period.
Retail ETFs for the Holidays: PowerShares DWA Consumer Cyclicals Momentum Portfolio (PEZ)
Expenses: 0.6%
The PowerShares DWA Consumer Cyclicals Momentum Portfolio (NYSEARCA:PEZ) is not a dedicated retail ETF. It is more of a traditional consumer discretionary fund, as it is diversified throughout various discretionary and retail sub-industries.
However, PEZ does allocate over a third of its combined weight to specialty and Internet retailers. Food and staples retailers represent another 2.2% of the ETF’s holdings.
Like the aforementioned PMR, PEZ is a smart beta ETF, though this quasi-retail fund adheres to a different strategy. PEZ tracks the Dorsey Wright Consumer Cyclicals Technical Leaders Index, which “is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 common stocks from the NASDAQ US Benchmark Index.”
PEZ features large-, mid- and small-cap stocks that hail from both the value and growth spectrums.
Top 10 holdings include Ross Stores and Ulta.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
