Strong September Sales Boost Retail ETFs

by on October 9, 2009 | ETFs Mentioned:

Retail stores have been among the hardest hit by the recent global recession, but it appears that finally some relief may be in sight. For the first time in 13 months retail sales rose, finishing up 1.1% in September. More big-ticket sales, a later Labor Day, and poor 2008 September numbers all contributed to the better-than-expected results.

Mall of AmericaAmong the best performers were discounters such as Walgreen’s, which saw higher non-pharmacy sales, and Family Dollar, which saw its sales rise more than 5%. BJ’s Wholesale Club and Costco also saw robust sales growth, suggesting that consumers are continuing to look for value.  However, many teen and children’s retailers posted significant declines, a troublesome development since September performance usually gets a boost from the back to school rush.

Abercrombie & Fitch and American Apparel posted steep declines as customers trended to cheaper rivals such as American Eagle Outfitters and Aeropostale, which saw a 19% surge in sales for September.

While generally positive, the numbers are comparable to 2005 sales figures, which erases nearly four years of sales growth for the industry. This fits in with most of the news lately – these sales numbers are average but nothing spectacular. Apparently encouraged by further proof that the downward slide may be ending, investors pushed consumer discretionary ETFs (and retail ETFs in particular) higher on Thursday.

Retail Focused ETFs

For investors who are bullish on the retail sector there are many ways to invest with ETFs. Below are three of the best ways to get into this area of the market. For more ETF news and analysis, make sure to sign up for our free ETF Newsletter.

  • SPDR Retail ETF (XRT): This fund focuses on small to medium sized firms, and has an average market capitalization of just over $4 billion. Despite its high turnover rate of almost 70%, it maintains an expense ratio of just 0.35%, one of the lowest in the sector. The fund is also well diversified; less than 20% of assets are in the top 10 holdings. Some of XRT’s largest holdings include Macy’s, Foot Locker, and Limited Brands.


  • Merrill Lynch Retail HOLDR (RTH): This HOLDR is extremely concentrated in large and giant cap stocks. The fund only has 18 holdings ,including nearly 20% in Wal-Mart and 12% in Home Depot. Due to its large cap nature, the fund also pays out a decent dividend yield of 1.8%, far greater than many in the industry. The dividends and the strength of some of the large cap names in the sector has allowed RTH to be the best performing ETF in our Consumer Discretionary ETFdb Category, posting a 72% gain year-to-date.


  • PowerShares Dynamic Retail (PMR): This ETF provides a middle ground for diversification between the aforementioned funds; it has 30 individual holdings but no single stock takes up more than 6.3% of the overall fund’s allocation. Some of the largest holdings include Bed Bath & Beyond, Best Buy, and Amazon. The fund also has a significant allocation to small cap stocks, with nearly one third of the fund devoted to smaller companies.


Disclosure: No positions at time of writing.