Short-Term ETF Investment Capitalizing On This Time Of Year

Matt Thalman - INO.com Contributor - ETFs


The Holiday Season is now upon us, and in just a matter of days, millions of dollars will be spent buying presents. On Thanksgiving Thursday, Black Friday, Small Business Saturday, and Cyber Monday we will see millions of shoppers spending billions of dollars on gifts for the holidays.

But since we have a 'holiday' shopping season every year the more important thing from an investors perspective is whether holiday sales will be higher or lower than last year. Luckily this year the National Retail Federation expects annual holiday spending will increase by 3.6% to 4% this holiday season over last year.

Soon after the weekend, sales figures will start rolling in, and investors will either start selling or buying shares of the companies winning the retail holiday war. This makes it hard for investors to accurately predict ahead of time which companies will be the winners and which will be the losers, and therefore Exchange Traded Funds are the best way to make this investment.

With ETF's you can easily purchase a small or large basket of retail stocks right before the holiday shopping season, benefit from the winners while not getting crushed by the losers, and then get out of investing in retail before the end of the year.

So, if this sounds like the kind of purchase you want to make this holiday season, let's look at a few different ETF's you can buy now.

The first retail ETF anyone interested in making this trade should look at is the VanEck Vectors Retail ETF (PACF:RTH). The RTH is a market cap weighted index of the 25 largest US-listed companies in which most of their revenue comes from retail. The ETF’s top five holdings include Amazon.com (NASDAQ:AMZN), Home Depot (NYSE:HD), Wal-Mart (NYSE:WMT), Costco Wholesale (NASDAQ:COST), Lowe's (NYSE:LOW).

RTH's top 10 holdings make up nearly 65% of the fund while its largest holding Amazon represents 18.6%. The heavy weighting towards the funds top stocks is partially due to it only holding 25 companies, and its market cap weighted nature. In the future, as Amazon continues to grow, this disparity in weighting could grow even larger.

The flipside of the large weightings is that when you buy RTH, you are only buying the biggest companies. No need to worry about a struggling retailer whom may have a terrible holiday season and really hurt your overall returns. Lastly, RTH only charges 0.35%, so your cost will be low even if you decide to stay in it for an extended period.

Next, we have the Amplify Online Retail ETF (NASDAQ:IBUY). This ETF offers investors more of a focus on companies who receive at least 70% of their revenue from online sales. The fund has 75% of its assets in U.S. based retailers and 25% in international retailers. Furthermore, the stocks are equally weighted within their bundle, domestic or foreign, which helps keep the portfolio more evenly diverse than say RTH.

Currently, iBuy has 40 holdings with Overstock.com (NASDAQ:OSTK), Carvana (NYSE:CVNA), PetMed Express (NASDAQ:PETS), QVC Group (NASDAQ:QVCA), Stamps.com (NASDAQ:STMP) rounding out its top five. IBuy’s top 10 holdings only make up 36% of its portfolio, but the ETF has an expense ratio of 0.65%, which is one downside if you want to hold on to it for a while.

Perhaps you still want more exposure than just 40 stocks, well then, the SPDR S&P Retail ETF (PACF:XRT) is an all-encompassing retail ETF which holds 86 different stocks. Furthermore, XRT is an equally weighted fund, meaning a retailer like Urban Outfitters Inc. (NASDAQ:URBN) represents roughly the same amount as Amazon or Wal-Mart. Obviously, this has its pros and cons, and each individual investor should weigh those for themselves. For myself, XRT is attractive since I already have a large position in Amazon and the reason I would be buying an ETF is to diversify. Therefore, I don’t want Amazon to be overly weighted in the ETF I buy.

XRT also carriers an expense ratio of just 0.35%, has a distribution yield of 1.6% and despite only having $414 million in assets under management, the fund has been in existence since 2006, meaning it is not in danger of folding currently.

While my list of retail ETF’s is certainly not all-inclusive, the last one I would like to highlight is The First Trust Nasdaq Retail ETF (NASDASQ:FTXD). This ETF holds a maximum of 50 U.S. retail companies, which is loosely defined as companies engaged in the direct sale of goods or services to the public. Once 50 stocks are found, they are ranked and then weighted based on three factors; essentially growth, current value, and volatility. Due to the fund experiencing a more active management style, it has an expense ratio of 0.6%.

FTXD has only been in existence for a little more than a year, currently has just under a million in assets under management, and is up 3.75% over the last three months, but still down 1.5% over the last 12 months. Due to its performance and short lifespan, I would be hesitant to jump into FTXD head first, but it’s worth a small position or at the very least an addition to your watchlist because of its methodology in picking stocks and weighting them within the portfolio.

Retail, in general, has been challenging to play over the past few years, and because of Amazon, it will probably remain that way for the foreseeable future. But as I mentioned at the beginning of this piece, the trade I am speaking of here is a shorter-term trade, with the catalyst being the start of the holiday shopping season. So, plan to get in, and get out.

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor held long positions in Apple, Tesla, Intel, Google, Amazon.com, Facebook, Priceline and Microsoft at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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