Year-to-date, only the technology sector is outperforming consumer discretionary. That is to say consumers are feeling good, and data support as much.
The University of Michigan’s consumer sentiment survey for August checked in at 96.2, topping the estimate of 95.5. While the gauge residing at its lowest levels since January should not be overlooked, retail sales in the first half of the year and earnings from retailers have been supporting upside for the related equities and retail ETFs.
Retail ETFs may be some of the best ETFs to buy in September because the retail space historically delivers impressive performances in the ninth month of the year. In fact, several of the best ETFs for September dating back years include retail ETFs or funds with significant consumer discretionary exposure.
With the retail sector looking strong, here are some of the best ETFs to buy for the last four months of 2018.
Retail ETFs to Buy: SPDR S&P Retail ETF (XRT)
Expense Ratio: 0.35% per year, or $35 on a $10,000 investment.
The SPDR S&P Retail ETF (NYSEARCA:XRT) is considered the benchmark retail ETF. XRT is more than 12 years old and home to over $700 million in assets under management, making it one of the oldest and largest retail ETFs.
Last year was a rough one for this retail ETF. XRT gained 4.1%, but that pales in comparison to the almost 23% gained by the S&P 500 Consumer Discretionary Index. Rising defaults, store closures and concerns about the overall health of brick-and-mortar retailers plagued XRT in 2017, but the fund is bouncing back with a vengeance in 2018 with a year-to-date gain of 15%.
XRT’s struggles are often sourced to the fund’s relative lack of exposure to the booming e-commerce space. Just 15.6% of XRT’s holdings are consider internet and direct marketing retailers. This retail ETF devotes nearly 38% of its combined weight to apparel and specialty retailers, many of which still rely heavily on the brick-and-mortar model.
Retail ETFs to Buy: VanEck Vectors Retail ETF (RTH)
Expense Ratio: 0.35%
While the VanEck Vectors Retail ETF (NYSEARCA:RTH) is one of the best ETFs for investors seeking brick-and-mortar exposure, it is also one of the best ETFs for investors looking for a proxy on Amazon (NASDAQ:AMZN). The largest e-commerce company accounts for over 21% of RTH’s weight.
Amazon’s heft in RTH underscores the point that this is a top-heavy ETF. Dow Jones components Home Depot (NYSE:HD) and Walmart (NYSE:WMT) combine for over 20% of this retail ETF’s weight, meaning just three of RTH’s 25 holdings combine for over 40% of the fund’s roster.
But as long as Amazon is working for investors, RTH is likely to do the same. This retail ETF is up 21% year-to-date, making it one 2018’s best-performing retail ETFs.
Retail ETFs to Buy: Invesco Dynamic Retail ETF (PMR)
Expense Ratio: 0.63%
The Invesco Dynamic Retail ETF (NYSEARCA:PMR) is a smart-beta approach to retail ETFs. PMR targets the Dynamic Retail Intellidex Index, which “thoroughly evaluates companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value,” according to Invesco.
PMR is home to 30 stocks and features deep brick-and-mortar exposure via holdings including department stores, discount stores, warehouse clubs and specialty retailers, among others.
Roughly 60% of this retail ETF’s holdings are mid- and small-cap stocks, but the fund devotes nearly 15% of its combined weight to Amazon, Home Depot and Walmart. PMR has recently been gaining momentum, posting an August gain of 6.8%. The fund now resides 13.6% above its 200-day moving average.
Retail ETFs to Buy: ProShares Long Online/Short Stores ETF (CLIX)
Expense Ratio: 0.65%
As its name implies, the ProShares Long Online/Short Stores ETF (NYSEARCA:CLIX) is a bet on online retailers and a wager against traditional brick-and-mortar stores. In other words, this retail ETF is also a long/short ETF.
CLIX, which is still less than 10 months old, is 100% long online retailers while holding a 50% short position in brick-and-mortar retailers via the Solactive ProShares Bricks and Mortar Retail Stores Index. In other words, this would be one of the best ETFs to own if retail stocks see a repeat of 2017, when online names rallied while traditional retailers languished.
Even while being short resurgent brick-and-mortar retailers, the online crew in CLIX is carrying the day for the ETF. Up nearly 25% year-to-date, CLIX is one of 2018’s best-performing retail ETFs.
Retail ETFs to Buy: First Trust Nasdaq Retail ETF (FTXD)
Expense Ratio: 0.6%
The First Trust Nasdaq Retail ETF (NASDAQ:FTXD) is one of the more obscure names among retail ETFs. Like the aforementioned PMR, FTXD uses a smart beta-approach to the retail sector, focusing on the growth, value and volatility factors.
FTXD’s 50 holdings include some e-commerce and online retail names, such as Amazon. However, this retail ETF is heavily dependent on retailers with physical storefronts. For example, TJX Companies (NASDAQ:TJX) and Kohl’s (NYSE:KSS) combine for 16.3% of FTXD’s weight. With traditional retailers rallying, FTXD is up 15% year-to-date.
Employing the low volatility and value factors could keep FTXD tilted toward brick-and-mortar retailers over the course of the fund’s next rebalance.
Retail ETFs to Buy: Direxion Daily Retail Bull 3X Shares (RETL)
Expense Ratio: 1.12%
The Direxion Daily Retail Bull 3X Shares (NYSEARCA:RETL), like any other leveraged ETF, is not intended to be held over long holding periods and that is the case not just because of the rich expense ratios associated with leveraged products.
Leveraged ETFs are intended to be daily instruments, and over long holding periods, these funds can generate returns that deviate wildly from the underlying index. As it pertains to RETL, one way of looking at the short-term nature of the lone leveraged retail ETF is that the fund is worth considering for active traders during retail earnings season and when consumer sentiment, retail sales and related data points are released.
RETL tries to deliver triple the daily returns of the S&P Retail Select Industry Index, the same index XRT tracks.
Retail ETFs to Buy: ProShares Online Retail ETF (ONLN)
Expense Ratio: 0.58%
For investors looking for a retail ETF that eschews brick-and-mortar stores, the ProShares Online Retail ETF (NYSEARCA:ONLN) is one of the best ETFs to buy. Data confirm as much. ONLN follows the ProShares Online Retail Index.
“Analysts expect the growth of online retail to continue. About 10% of global retail sales today are made online, leaving tremendous room for growth. Recent data indicates that figure could double by 2030,” according to ProShares.
ONLN offers a straightforward approach to the world’s dominant e-commerce companies. Amazon and the Amazon of China, Alibaba (NYSE:BABA), combine for almost 40% of ONLN’s weight. None of the ETF’s other 19 holdings exceed weights of 4.8%. Given the long-term expectations for online retail, it is fair to say the only knock on ONLN is age. The fund debuted on July 13. ONLN has traded modestly higher inception.
As of this writing, Todd Shriber does not own any of the aforementioned securities.
