Recent data reports and economic indicators have been mixed when it comes to the health of the American consumer. This has led some investors to think retail stocks are undervalued, while other investors believe they are overvalued. So whether you fall into the camp that thinks the next recession is “just right around the corner” or that the poor retail sales figures reported in December were not a sign the economy is struggling, but simply a blip in the data caused because of the government shutdown; there are a few newer Retail ETFs which give you the option to invest regardless of the way you think the market is headed.
The first place to start looking if you want to be long retail is with the SPDR S&P Retail ETF (XRT). The XRT would be most investors first choice if you are looking for plain vanilla long Retail ETF investing. XRT has been around since 2006; it has a lower than average expense ratio, when compared to others on this list, at 0.35%. IT has $250 million in assets, 96 holdings and is equally-weighted and draws stocks from the S&P Total Market Index, not just the S&P 500. It also invests in both e-commerce retailers and brick-and-mortar retailers.
Since most people would agree retails future is more online, the most basic ‘online’ Retail ETF is the Amplify Online Retail ETF (IBUY). IBUY has an inception date of April 20th, 2016, and offers equally weighted, well-diversified exposure to global online retailers. Firms must derive 70% of their revenues from online sales and can be any size in terms of market-cap (subject to the standard typical minimum size and liquidity constraints). The fund has 75% of its assets in US-based companies and 25% in foreign stocks. IBUY has an expense ratio of 0.65%, which is on the ‘high’ side, but considering the exposure the fund offers, it is not unreasonable. IBUY currently has $275 million in assets spread out over its 42 different holdings, which have a weighted average market cap of $52 billion. Wayfair (W), Etsy (ETSY), eBay (EBAY) and PayPal (PYPL) are four of the funds top 10 holdings, with none representing more than 5% of the fund.
A very similar option, with just a few slight difference’s, is the ProShares Online Retail ETF (ONLN), which has been a direct competitor of IBUY since its inception date of July 13th, 2018. ONLN has an expense ratio of 0.58% but only currently $25 million in assets under management. ONLN also attempts to split its assets at 75% domestic and 25% international. However, the biggest difference between the two funds is that ONLN is a market cap weighted fund, as opposed to the equally-weighted IBUY. This means ONLN’s weighted average market cap is $304 billion, with Amazon.com (AMZN) and Alibaba (BABA) representing 26.7% and 15.9% respectively of the fund. Furthermore, this sends ONLN’s top 10 holdings weighting to 78%, well above IBUY’s 41%.
The first three have been all for investors who want to go ‘long’ retail, but just at an unleveraged rate. The Direxion Daily Retail Bull 3X ETF (RETL) allows you to get riskier in the retail space. RETL is a three times long leveraged ETF which invests in all retail regardless of industry or style. However, department stores are underweight in the portfolio when compared to other industry segments in the fund. RETL has a 0.99% expense ratio and of course, is only recommended for ‘daily’ use.
Now perhaps you think retail is heading lower in the future. Well, your two best options at this time are the ProShares Decline of the Retail Store ETF (EMTY) and ProShares Long Online/Short Stores ETF (CLIX). EMTY is more of a ‘pure-play’ on retail declining overall, while CLIX is betting that online retail will perform well, while brick-and-mortar is heading lower. EMTY gives you 1X short exposure to companies who derive 75% or more of their revenue from in-store sales. The fund also equally weights all the companies, which gives you more exposure to the companies who are really struggling when compared to a market cap weighted investment, which should be considered a good thing if you are trying to short struggling retailers. Considering the exposure being offered, the fund has a reasonable expense ratio of 0.65% and has been around since the end of 2017.
CLIX uses leverage to give investors 100% exposure to online retailers and 50% exposure to brick-and-mortar retailers. This offers investors a little more safety when compared to EMTY because it does have the ‘long’ exposure. The ‘long’ exposure aspect of the fund invests in companies that receive none of their revenue from physical stores and is based on market-cap-weighting. The ‘short’ exposure is based on stores that receive at least 75% of their sales ‘in-store’, but these positions are equally-weighted. CLIX also has an expense ratio of 0.65% and was also opened during the end of 2017.
Unfortunately, Direxion closed its 3X Bear Retail ETF a few years back, and no other true ‘short’ retail ETF’s have emerged in recent years. You could invest in consumer staple ETF’s and get bear exposure to retail stocks that way, but those options would not be true bearish retail exposure. Regardless, though of whether or not you believe the retail industry is moving higher or lower in the near term, you do have a few options if you choose to invest in this sector.
Disclosure: This contributor held held positions in Amazon.com, eBay, and PayPal 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.