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Retail ETFs in Focus This Holiday Season

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As a pioneer in retail business, the United States provides ample growth opportunities for all types of retail companies. From growth perspective, retail ranks among the dominant U.S. industries and employs an enormous workforce. Retail sales represent approximately 30% of consumer spending, which itself accounts for more than two-thirds of the economy.

The U.S. economy is on the growth path driven by lower oil prices and an improved job market that is counteracted by certain spillover effects from the global economy. However, this is not likely to come in the way of U.S. economic growth and the labor market boom. (Read: 6 Sector ETFs for December )

The Federal Reserve chairwoman Janet Yellen and the president of the New York Fed William Dudley recently expressed the possibilities of a U.S. rate hike in December, the first since the 2007-2009 economic crisis and recession. The key basis for the hike will be a fall in unemployment rate and the return of inflation to the Central Bank's 2% target over the medium term.

From the economic standpoint, we see a gradual improvement in the labor market, as unemployment rates have declined to the lowest level since Sep 2008. According to the recent data from the Bureau of Labor Statistics, the unemployment rate for November has declined to 5% same as in October. In November, 211,000 people were hired, reflecting improved employment prospects. (Read: 4 Consumer ETFs to Beat Holiday Optimism )

Given a rebounding U.S. economy, the retail space is bubbling with optimism. A gradual recovery in the housing market and manufacturing sector, along with an improving labor market and lower gasoline prices, are favoring the economy and playing key roles in raising buyers' confidence. We expect this positive sentiment to translate into higher consumer spending.

The recent U.S. GDP data (second estimate) revealed that the economy grew at a rate of 2.1% in the third quarter, despite a strong dollar and overseas weakness, while consumer spending increased 3.2%. Though the pace of economic growth decelerated from the second quarter due to inventory correction, analysts are hopeful of a pickup in momentum in the final quarter that primarily constitutes the holiday season. (Read: Retail ETF Hits 52 Week High )

The holiday season is the time when retailers are on their toes, flooding the markets with offers and promotions. Apart from price-matching policies, retailers will sweep buyers off their feet with early-hour store openings, huge discounts, promotional strategies and free shipping on online purchases. Since the season accounts for a sizeable chunk of yearly revenues and profits, retailers are gung ho to drive footfall.

In this regard, retailers are efficiently allocating a major portion of their capital toward a multi-channel growth strategy focused on improving merchandise offerings, developing IT infrastructure to enhance web and mobile experiences of customers, giving their stores a facelift, developing fulfillment centers to enable speedy delivery, implementing an enterprise-wide inventory management system as well as enhancing their relationship with existing and new customers.

Playing the Sector through ETFs

ETFs present a low-cost and convenient way to get a diversified exposure to this sector. Below we have highlighted a few ETFs tracking the industry:

SPDR S&P Retail ( XRT ):

Launched in Jun 2006, SPDR S&P Retail (XRT) is an ETF that seeks investment results corresponding to the S&P Retail Select Industry Index. This fund consists of 104 stocks, the top holdings being Wayfair Inc. (W), Pep Boys - Manny, Moe & Jack (PBY) and Abercrombie & Fitch Co. (ANF), representing asset allocation of 1.44%, 1.42% and 1.39%, respectively, as of Dec 11, 2015. The fund's gross expense ratio is 0.35%, while its dividend yield is 1.12%. XRT has $637 million of assets under management (AUM) as of Dec 10, 2015.

Market Vectors Retail ETF ( RTH ):

Initiated in Dec 2011, Market Vectors Retail ETF (RTH) tracks the performance of Market Vectors US Listed Retail 25 Index. The fund comprises 26 stocks, the top holdings being Amazon.com Inc. (AMZN), Home Depot Inc. (HD) and Wal-Mart Stores Inc. (WMT), representing asset allocation of 15.25%, 8.73% and 6.39%, respectively, as of Dec 11, 2015. The fund's net expense ratio is 0.35% and dividend yield is 0.37%. RTH has managed to attract $147.2 million in AUM till Dec 10, 2015.

PowerShares Dynamic Retail ( PMR ):

PowerShares Dynamic Retail (PMR), launched in Oct 2005, follows the Dynamic Retail Intellidex Index and is made up of 30 stocks that are primarily engaged in operating general merchandise stores such as department stores, discount stores, warehouse clubs and superstores. The fund's top holdings are The Kroger Co. (KR), Costco Wholesale Corporation (COST) and L Brands, Inc. (LB), reflecting asset allocation of 5.54%, 5.25% and 5.16%, respectively, as of Dec 11, 2015. The fund's net expense ratio is 0.63%, while its dividend yield is 0.71%. PMR has managed to attract $22.4 million in AUM as of Dec 10, 2015.

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SPDR-SP RET ETF (XRT): ETF Research Reports

MKT VEC-RETAIL (RTH): ETF Research Reports

PWRSH-DYN RETL (PMR): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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