Tuesday’s ETF To Watch: Retail ETF (XRT)

by on September 28, 2010 | ETFs Mentioned:

Despite sagging confidence, some retail firms have managed to post strong results over the summer thanks to solid back-to-school spending and easing fears over a total collapse in the economy. Luxury spending was up 9% in the most recent quarter, while quick service and upscale dining both saw spending increases of double digits. However, this strength will be put to the test later today as investors digest news regarding Walgreen’s earnings release and the U.S. Consumer Confidence report for September [see all the ETFs in the Consumer Discretionary ETFdb Category].

The Consumer Confidence report is generally more short-term in nature than its University of Michigan counterpart, surveying individuals on their expectations for the next six months. Furthermore, the survey has often been criticized since it looks at a completely new group of people every month, potentially creating large swings over a short period of time. Nevertheless, the report remains very popular among investors and is seen as a key event for short-term consumer sentiment, which looks to be extremely important in this turbulent economic time. The figure is expected to rise modestly up to 53.5 from 52.1 last month, suggesting that consumers are starting to feel better about the state of the economy despite a relative lack of good news regarding growth or employment.

With this report on tap, look for the SPDR S&P Retail ETF (XRT) to be in focus for much of today’s trading session. The fund tracks the S&P Retail Select Industry Index, which represents the retail sub-industry portion of the domestic equity market. The fund allocates high levels to the mid and small cap sectors which make up close to 75% of the fund’s total assets. Should today’s confidence levels plunge look for these smaller names to take a big hit in today’s trading session, potentially bringing XRT down as well.

XRT has, of course, been in the headlines for reasons completely unrelated to its investment merits; the fund was called out as an example of dangerously high net short positions for equity ETFs in a report written recently by a Boston money manager. Despite some concerns, the idea of a pending “ETF collapse” has been roundly rejected [read Why An ETF Can't Collapse].

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Disclosure: No positions at time of writing.