ETF Strategies for the Retail Rebound

by: Tom Lydon

March was good. Very good. Consumers shopped more than they have in several years. Sure, they’re not flinging Benjamins with abandon, but the signs of a turnaround are there. Retail ETFs come in several varieties for you to play along at home.

SPDR S&P Retail (NYSEARCA:XRT) is trending higher, up 16% though this March. Now the numbers are coming in, and they’re backing up that performance: same-store sales in March rose 9.1% from a month earlier, the biggest jump since records started being kept in 2000.

Factors such as continued job creation, and a lower rate of unemployment are going to help retailers to continue their advance. However, while the overall mood of consumers has gone from panicked to cautious, a resumption of our normal spending habits is going to take time.

Stephanie Rosenbloom for The New York Times reports that rising factory output and a boost in retail sales are bolstering consumers to buy jewelry, cars, clothes and the like. Sales gains in March, in fact, were seen across all categories: spending on luxury goods rose 22.7%; home furnishings, 13.8%; specialty apparel, 5.2%.

On top of that, cargo volume at major retail ports is expected to surge ahead 8% this month from a year earlier.

Retail ETFs fall into a few categories:

Funds that hold a broad mix of retailers of all types – anything from online travel sites to McDonald’s (NYSE:MCD) may be included. Watch out with the HOLDRs: they tend to have very heavy weightings in a few companies and can only be bought in 100-share increments.

  • Retail HOLDRs Trust (NYSEARCA:RTH)
  • SPDR S&P Retail (XRT)

Consumer discretionary, a category of spending defined as “non-necessity” items. Televisions, automobiles, DVD players and the like.

  • Vanguard Consumer Discretionary ETF (NYSEARCA:VCR)
  • First Trust Consumer Discretionary AlphaDEX (NYSEARCA:FXD)
  • PowerShares Dynamic Leisure & Entertainment (NYSEARCA:PEJ)
  • PowerShares Dynamic Consumer Discretionary (NASDAQ:PEZ)
  • Rydex S&P Equal Weight Consumer Discretionary (NYSEARCA:RCD)

Consumer staples, which are the “necessary” items that few of us can live without. This includes toothpaste, household cleaners, toilet paper and basic food items.

  • PowerShares Dynamic Consumer Staples (NASDAQ:PSL)
  • Vanguard Consumer Staples ETF (NYSEARCA:VDC)
  • Rydex S&P Equal Weight Consumer Staples (NYSEARCA:RHS)
  • Consumer Staples Select Sector SPDR (NYSEARCA:XLP)

And finally, there’s luxury spending. The kind of spending that spares no expense. Coach bags (COH), Nordstrom clothing (NYSE:JWN) and stays at Wynn Resorts (NASDAQ:WYNN). You can access these retailers in the Claymore/Robb Report Global Luxury (ROBB).

Read the disclaimer: Tom Lydon is a board member of Rydex|SGI.

Disclosure: None