Investors often take a look at macro events or trends and try to find derivative plays that will give them a head start on the rest of market. As the prices of oil and gasoline go down, investors may look to retail as a beneficiary as consumers have more money to spend.
One way to see if this idea works is to compare the performance of the SPDR S&P Retail ETF (XRT) with an ETF such as the US Oil Fund (USO). The chart of this comparison is inconclusive. There has an inverse relationship during the last three months, but long-term, it is difficult to determine any pattern.
Taking a bit deeper look into the XRT reveals the term "retail" as applied to the ETF may not mean what most consumers might think it would.
The top ten holdings for the XRT as of July 19, 2012 are:
- Shutterfly Inc. (SFLY)
- Netflix.Inc (NFLX)
- Cabelas Inc. (CAB)
- Sonic Automotive Inc.(SAH)
- Urban Outfitters, Inc (URBN).
- Abercrombie and Fitch, Inc. (ANF)
- Aeorpostale (ARO)
- Gap Inc. (GPS)
- Childrens Place (PLCE)
- Brown Shoe Inc. (BWS)
The first item of note is the holdings in the top two places. Neither are generally considered retailers. Shutterfly is listed in the Technology sector and in the Internet Information Provider industry. Netflix is listed in the Music and Video Stores, but they have a subscription model and are much retail as Time Magazine.
The others on the list are more traditional retailers, but notably absent from this list are giants Wal-Mart, Costco and Macy's. These classic retailers do appear farther down the list of holdings, included with nearly 100 different companies as of this date. The fund is not weighted by size, and with companies included like Trip Advisor (TRIP) and Expedia (EXPE), may move in a completely different direction than what an investor interested in retail would expect.
XRT Fund Performance
The XRT has returned a below market return of 4.73% year to date as of July 20, (compared to the SPY return of 8.9%) although it does have a fairly respectable yield of 3.78%, The fund has a low beta of 0.3 and has had a good return of over 14% average for the last three years.
Although the majority of the fund does conform to the general conception of retail, investors interested may want to consider the impact that a non-related high-flyer like Netflix might have on the ETF if the price plummets as it did in 2011.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.