For those investors in retirement, certain sectors of the market are often favorite stomping grounds. For instance, industries like healthcare or electric utilities feature plenty of stability and big-time dividends, so it’s no wonder why those in or near retirement flock to them in spades.
But retirees may want to consider other sectors to overweight, and one of the best could be retail stocks.
Yes, retail stocks.
A lot has been written about the death of traditional retailers. But the truth is, Americans still love to shop. Currently, buying things makes up about 2/3 of our total GDP. And despite several high-profile retail stocks suffering this year, sales continue to rise. According to the U.S. Census Bureau, total annual retail sales have increased an average of 4.5% annually between 1993 and 2015. This creates a pretty stable base of earnings for most retailers.
For those investors looking for retirement plays, several retail stocks are just as good — and perhaps even better — than more traditional retirement fare.
Here are three ways — one stock, one exchange-traded fund and one mutual fund — for investors to add a dose of retail stocks to their portfolio.
Retail Stocks For Retirement: Kroger (KR)
There are plenty of individual retail stocks out there, but investors may want to saddle up grocery store and supermarket Kroger Co (NYSE:KR). It has the goods for stability and growth.
In terms of stability, KR operates as the largest pure-play grocery store network in the country. It literally owns 24 different local and regional brands across thousands of stores. Perhaps more importantly, those brands reach a variety of income and demographic levels. There are shoppers hitting its stores for organic Himalayan pink salt as well as lower-price-seeking bargain shoppers.
That vast network of stores and shoppers has Kroger hitting revenues of around $100 billion each year.
What’s impressive is that KR is still able to meaningful grow those revenues in the low-margin food business. Part of that growth has come from its revamped in-house organic and natural brands. The other part has been launching new tech initiatives — such as online ordering.
And that growth should continue in the future. Kroger is looking to get bigger in the pharmacy game. Already one of the largest pharmacy operators in the country, KR is one of the chief bidders for various Walgreens Boots Alliance Inc (NASDAQ:WBA) assets it must shed as it buys Rite Aid Corporation (NYSE: RAD). This will instantly add plenty of high-margin revenues right back into KR’s bottom line.
In the end, Kroger could one of the best all-around retail stocks to own. It has plenty of current profits and a growing 1.4% dividend, as well future growth.
Retail Stocks For Retirement: SPDR S&P Retail ETF (XRT)
When it comes to an indexed approach to retail stocks, there is really only game in town, and that’s the SPDR S&P Retail (ETF) (NYSEARCA:XRT).
XRT tracks the S&P Retail Select Industry Index. This benchmark holds all the retail stocks on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges — a total of 98 small-, mid- and large-cap U.S. retailers. This includes giants like Wal-Mart Stores, Inc. (NYSE:WMT) as well as small fires like Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI).
The real beauty about this ETF is that like many of the sector SPDRs, XRT is equal-weighted.
Equally weighting the underlying holdings allows these smaller stocks to shine. The problem is a traditional market-cap weighted index, big retail stocks like WMT have more “pull” on the underlying returns. Even if OLLI is having an amazing quarter, Walmart could hold the index down. By equal weighting, everyone stands on their own.
For retirement investors, that serves to add a great mix of growth — which is needed to fund retirements — as well as stability from the bigger names.
The proof is in the pudding. XRT has managed to return 9.58% annually since its inception in 2006. That’s outperformed the regular S&P 500 in that time.
Meanwhile, expenses for the retail ETF are cheap at just 0.35%, or $35 per $10,000 invested.
Retail Stocks For Retirement: Fidelity Select Retailing Portfolio (FSRPX)
For those investors looking for an active touch when it comes to retail stocks, Fidelity has you covered.
Run by Deena Friedman and now with Nicola Stafford, the Fidelity Select Retailing Portfolio (MUTF:FSRPX) mutual fund offers an active approach to the sector. The managers tend to focus on those retailing stocks that have wide moats — think branding — and fanatical customer bases. In addition, the duo focuses on those retailers that have durable multiyear earnings growths stories behind them.
Retailers that have been working to exploit e-commerce and online shopping as well as international expansions are also a major factor for selecting the fund’s holdings.
This focus has allowed the fund to underweight and avoid many of the problem retailers like Target Corporation (NYSE:TGT) and Macy’s Inc (NYSE:M) in recent quarters.
It has also helped on the performance front. Over the last ten years, FSRPX has managed to return 12.5% annually. That’s more than double the S&P 500 and beat its benchmark’s 11.13% return per year. While Friedman and Stafford are relatively new at the helm, they run the portfolio in a very similar manner as their predecessors. FSRPX’s profits should hold up.
Expenses for the fund run 0.81% and the minimum to invest is the standard Fidelity $2,500.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
