Retail ETFs dodge the sector's bloodbath

Slow spending has hardly slowed down these funds.

By InvestorPlace Aug 23, 2013 3:03PM

copyright imagewerks, Getty Images, Getty ImagesiplogoBy Alyssa Oursler


If you've been following financial news lately, you're probably aware that retail earnings have been plain U-G-L-Y.


The first hint at weak consumer spending for the recent quarter came last week, courtesy of Macy's (M) -- a stock that, until early August, was outpacing the broader market by nearly 10 percentage points. After reporting an earnings miss and "continued uncertainty" from its shoppers, Macy's shed that lead and then some.


Of course, misery loves company. Big-box retailers Wal-Mart (WMT) and Target (TGT) dropped on disappointing results, while teen retail names like American Eagle (AEO) and Abercrombie & Fitch (ANF) also have been pounded since then.


ycharts_chart (44)
Click to Enlarge


You can look at the chart above to see how bad things have been across the sector -- even for names that haven't yet reported. Walmart has weathered the storm the best ... and still has lost more than double the broader market so far this month.


And yet, one big area of the retail world hasn't been pounded into the ground:


Retail exchange-traded funds.


Indeed, the biggest retail ETFs representing the sector -- the Retail SPDR (XRT) and Market Vectors Retail (RTH) -- are holding up just fine. The RTH is actually flat this week despite all the recent damage, and only 1 percentage point worse than the S&P 500 for the month of August. The gap is just a bit wider for the XRT.


ycharts_chart (45)
Click to Enlarge


And both retail ETFs are blowing away the broader market year-to-date, as seen in the chart to the right.


So why are retail ETFs holding up so well despite a merry-go-round of bloodbaths throughout the sector?


Because when it comes to ETFs, there's not much in a name -- and a fund's holdings might not be what you'd assume.


For most, when you hear "retail," the stocks that come to mind are mall stores like American Eagle, JCPenney (JCP) and Gap (GPS), or big-box retailers like Walmart and Target.

But the top holdings of XRT paint a much different picture of retail:


HOLDINGTICKERWEIGHTING
Penske Automotive GroupPAG1.31%
Best BuyBBY1.31%
NetflixNFLX1.29%
Lithia MotorsLAD1.27%
Asbury Automotive GroupABG1.26%
GrouponGRPN1.25%
GameStopGME1.25%
Conn'sCONN1.23%
Group 1 AutomotiveGPI1.21%
L BrandsLTD1.2%

Granted, XRT is an equal-weight fund, which means none of these stocks have significantly more weight than other stocks, and the fund does hold mall companies like Gap and Urban Outfitters (URBN). But the flavors represented up top still might surprise you. Four of the top 10 holdings are automotive retailers, while Netflix (NFLX) and Groupon (GRPN) -- which I consider media or tech companies as much if not more than retailers -- also make the cut.


But they sell stuff, so they fit the bill.


RTH is a little more straightforward -- part of the reason I chose it over the XRT when I decide to buy a retail ETF, and part of the reason why it has felt the sting slightly more. The fund's top holding is a recently unimpressive WMT, which makes up nearly 9% of the fund.


Still, RTH also has been bolstered not just by less-traditional retailers like Amazon (AMZN), but even medical distributors like McKesson (MCK) and Cardinal Health (CAH).


The bottom line: It's always good not to overreact to headlines, but that doubly goes for ETFs. And, as always, check out the holdings.


As of this writing, Alyssa Oursler was long RTH.


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