With the holidays behind us and a new fund now having a full
year's performance for comparison,
a perfect time to look at retail
The SPDR S&P Retail ETF (NYSEArca:XRT) continued its
dominance in 2012 in terms of both returns and investor
XRT returned 20.7 percent for 2012, beating its two peers, the
newcomer Market Vectors Retail ETF (NYSEArca:RTH) and the
PowerShares Dynamic Retail ETF (NYSEArca:PMR). RTH returned 19.7
percent for the year while PMR returned 17.5 percent, according to
total return data compiled by Bloomberg.
XRT holds more assets than its two peers combined, with $536
million versus $53 million for PMR and $34 million for RTH.
What's new in the retail ETF space is the emergence of RTH as a
viable alternative. RTH shed its old HOLDRs structure in December
2011 and started tracking a new index. The fund trades better than
its modest assets under management suggest. Bid/ask spreads average
just 5 basis points, and about $2.9 million changes hands daily
To be clear, XRT is far more liquid, with tighter spreads of 3
basis points and far more volume, over $500 million per day, on
average. With these numbers, XRT will continue to appeal to the
most active traders. But the point is that investors can trade in
and out of RTH fairly.
In contrast, PMR struggles somewhat with liquidity, trading at
far wider spreads than either of its peers-23 basis points-and with
less volume, about $520,000 a day.
XRT continues to trade with an interesting twist; namely, huge
short interest. But the bottom line is that XRT's massive shorts
don't threaten investors' claims on underlying assets one bit, even
though some investors might still be uncomfortable with short
interest that sometimes exceeds the float.
Switching gears to look at each fund's portfolio, we find
significant differences. XRT uses equal weighting rather than the
more typical market-cap weighting. This produces a massive bias
toward smaller firms:XRT's weighted average firm size is $9.9
billion compared with $72 billion for RTH. The general strong
performance of small-caps may have aided XRT's returns in 2012.
For 2013, investors should know that XRT will continue to
heavily favor smaller retail firms.
PMR also favors smaller firms, with an average market cap of
$26.2 billion. It aims to outperform the retail segment using
quant-based stock selection rather than relying on market-cap
Of the bunch, RTH comes closest to a plain-vanilla cap-weighted
industry fund. The list of top holdings shows how larger firms
dominate the basket for RTH but play a diminished role in PMR, and
Each fund took a different path to similar end-of-year results.
To me, this suggests that 2013 results could diverge
In short, I see two key takeaways here.
First, XRT continues to dominate the space regarding assets and
liquidity, but its equal weighting significantly alters its
exposure. I see XRT as a riskier fund, but one that paid off in the
Second, RTH, the newcomer, provides viable and much-needed
viable plain-vanilla coverage of the space, and a good choice for
those looking for a big, marketlike Walmart stake.
Of the three choices, PMR looks least attractive to me in view
of higher all-in costs from higher fees-63 basis points versus 35
basis points for XRT and RTH-and higher trading expenses.
At the time of this writing, the author held no positions in the
securities mentioned. Contact Paul Britt at
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2013 IndexUniverse LLC
. All Rights Reserved.