The day after Thanksgiving traditionally kicks off the holiday shopping season, one of the most important times of the year for consumers and investors alike. While promotional campaigns and receipt tallies from “Black Friday” are always closely monitored, this year the day comes with added importance. As the U.S. economy heads towards the finish line on a year most companies hope to soon forget, many sectors are looking for a boost to their bottom lines. Countless earnings reports, as well as the fate of some major firms, hang in the balance this year. Target (TGT) CEO Greg Steinhafel recently summed up the importance of this year’s Black Friday, saying that “the fourth quarter will be decided by the two days after Thanksgiving and the two days before Christmas.”
Most Americans have a downright dreary view of the overall economy, with consumer confidence at a 26 year low and unemployment over 10%. Still, consumer spending accounts for nearly 70% of the economy, and many analysts are pinning recovery hopes on a busy shopping season. As we wait to see if the holidays begin with a bang or a clunk, we take a look at five ETFs that hinge on the outcome from Black Friday.
PowerShares Dynamic Retail Fund (PMR)
This fund represents a pure retail play, focusing on companies such the Gap (GPS), TJX, and Bed Bath and Beyond (BBBY) that tend to generate a very large percentage of their sales around the holidays. Many of these firms also rely on customer credit card programs, a trend that will be carefully watched this year as many Americans look to avoid living beyond their means by piling on debt.
Most companies in this fund, which comprise the low to medium/high end segment of the market, have done very well in 2009 and have bounced back from 2008 lows. The fund is well diversified across market capitalization, with about 31% in large caps and 33% in small caps. PMR also includes more than just clothing and home product retailers; this ETF has a significant focus on online retailers and automotive part stores as well.
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iShares FTSE NAREIT Retail Capital Index (RTL)
Residential real estate was one of the asset classes hardest hit by the most recent market downturn, and many are anticipating that commercial real estate will be the next shoe to drop. Disappointing retail sales could be devastating for RTL, an ETF that invests in many of the country’s largest shopping mall owners. However, if sales are robust, many fears about a commercial real estate crash could dissipate, an outcome that would likely send RTL higher.
This fund pays an attractive dividend yield of over 6.5% (REITs are required to make a certain level of distributions to receive certain tax benefits), but includes several firms facing financial crises. Nearly 80% of the firm is concentrated in the fund’s top ten holdings, which includes mall giants Simon (SPG) and Kimco (KIM). RTL has a sky-high price/prospective earnings ratio of 35.1 (or more than twice the S&P 500), suggesting that significant earnings improvements are anticipated going forward.
iPath S&P 500 VIX Short-Term Futures ETN (VXX)
There is now a third certainty in life: the strong inverse relationship between volatility ETFs and U.S. equity markets. In recent months, this correlation has approached -1.0, with volatility spiking on troubling news and plummeting when all is well. Initial reports of the holiday sales may provide some insight into the market’s direction for the final month of the year. If results are poor, volatility could jump off the charts. But good results would indicate that the recovery is on track, and could send markets coasting across the finish line for 2009.
Although VXX has lost over 60.5% this year, it has enjoyed some tremendous short-term rallies, most of which have corresponded to steep short-term losses in stock markets that remind investors of the last two years.
Claymore/Robb Report Global Luxury Fund (ROB)
This fund turned in a disastrous performance in 2008, losing more than half of its value as discretionary items were slashed from corporate and personal budgets. But ROB has bounced back nicely in 2009, gaining more than 50% in 2009 as investors have loosened up their pocketbooks and fears about a collapse in the luxury market have subsided. This ETF is composed of well-known high end brands, including Daimler AG (DAI), Porsche (OTCPK:POAHF), Coach (COH), and Nordstrom (JWN). However, ROB is more than just a pure retail play, focusing on all types of high-end products and services (as evidenced by allocations to luxury hotel companies such as Wynn (WYNN) and Shangri-La (OTCPK:SHALF)).
ROB is the most international of the funds profiled here, with more than 60% of its holdings listed in Europe. While many luxury companies have seen increased sales in foreign markets, the U.S. still represents a big market for luxury goods, and sales of these high end products on Black Friday will be an important indication of the outlook for this market.
Wireless HOLDR (WMH)
In years past, the hottest technology gifts have included laptops, video game systems and plasma TVs. This year the most popular presents may be smart-phones, which are the primary products for many of this fund’s top holdings. With big interests in Research in Motion (RIMM) (15%), Verizon (VZ) (11%), Motorola (MOT) (8%), and Nokia (NOK) (7%), WMH could be on the move if smart-phone sales miss or beat expectations later this week.
Companies such as Verizon and Motorola have spent huge sums to compete with Apple (AAPL) and RIMM. If the sales of their new phones do not dent the competition, it could be a very long winter indeed for the Wireless HOLDRS ETF.
Author's Disclosure: No positions at time of writing.