Bet on These Retail ETFs to Ride the Holiday Sales Momentum
Considering the existing tailwinds, we highlight some ETFs that investors can consider to tap the holiday sales surge.
Investors are highly optimistic about the retail space as the sector is seeing strong earnings reports and sales momentum. With the holiday season approaching, the optimism on the sector returns is growing. Of the 77.1% S&P 500 companies in the sector that have reported the third-quarter earnings results so far, 85.2% witnessed and earnings and revenue beat. Earnings grew 8.4% year over year, with revenues seeing an 11% rise, per the Earnings Trends report as of Nov 17, 2021.
In an encouraging development, the retail sales data came out to be remarkable. The metric rose 1.7% in October (the largest surge since March), beating economists’ estimate of a 1.4% rise. This, in turn, marked a 16.3% increase from the year-ago figure (according to a Reuters article). The metric rose for the third consecutive month. Online sales rose 10.2% from the year-ago level.
In another positive development, the U.S. jobs report for November seems very impressive. Nonfarm payrolls rose by 531,000 in October, surpassing the estimate of 450,000, per a CNBC article. Also, beating expectations, the unemployment rate declined to 4.6%, hitting a new pandemic low level (according to a CNBC article).
Consumers seem to be looking forward to buying homes, motor vehicles and major household durables. Several surveys and reports support the fact that the proportion of the population planning to go on vacation has shot up to the highest level since February 2020, as mentioned in a Reuters article.
Commenting on strength in the retail space, E-Trade’s Mike Loewengart has said that “With the robust retail sales read and solid start to retail earnings, it’s crystal clear that inflation isn’t standing in the way of consumers. Despite some hiccups on the labor market and inflation fronts, this could serve as the vote of confidence investors needed signaling that the economy is still chugging along nicely. As we narrow in on the holiday shopping season, the question remains if better than expected numbers from retailers from Q3 can continue to close out 2021,” as mentioned in a CNBC article.
Retailers have adequately prepared themselves for the holiday season (the late October-December period) that is considered a busy season for many industry players and market participants. The quarter is also marked by some popular retail events like Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas, which increase its significance among retailers.
According to the National Retail Federation (“NRF”), holiday season sales in 2021 are projected to surpass all existing records during November and December and rise 8.5-10.5% year over year to between $843.4 billion and $859 billion. Holiday sales increased 8.2% in 2020 to hit a record of $770 billion.
Also, studying Mastercard SpendingPulse data, U.S. retail sales — excluding automotive and gas — for the “75 Days of Christmas” from Oct 11 to Dec 24 are anticipated to increase 6.8% from the year-earlier figure.
Considering Deloitte’s annual holiday sales forecast, retail sales for the holiday season are projected to rise between 7% and 9% this year, per a prnewswire article. The retail sales figure is predicted to fall in the $1.28-$1.3 trillion range during the November-January period.
The pandemic has been a blessing in disguise for the e-commerce industry to date as people continue to practice social distancing and shopping online for all essentials, especially food items. Thus, on par with the digitization trend, the upcoming U.S. holiday season is expected to see a significant surge in online sales. The NRF projects online and other non-store sales increase of 11% to 15% to reach between $218.3 billion and $226 billion compared with $196.7 billion in 2020. Mastercard SpendingPulse predicts online sales to increase 7.5% during the “75 Days of Christmas” phase.
Retail ETFs to Consider
Considering the strong trends, investors may want to park their money in the following retail ETFs to tap the sales boom.
Amplify Online Retail ETF
Amplify Online Retail ETF attracted $904.7 million to its asset base and offers global exposure to companies that derive 70% or more revenues from online and virtual retail by tracking the EQM Online Retail Index.
Amplify Online Retail ETF is home to 80 stocks, each accounting for less than 2.24% of its assets. IBUY charges 65 bps in annual fees (read: 5 ETFs to Buy This Holiday Season for Gift of Good Returns).
ProShares Online Retail ETF
ProShares Online Retail ETF focuses on global retailers that derive significant revenues from online sales. ONLN tracks the ProShares Online Retail Index, holding 25 stocks in its basket.
ProShares Online Retail ETF has accumulated $895.8 million in its asset base and charges 58 bps in annual fees (read: Grab Retail ETFs on Upbeat Holiday Sales Forecast).
SPDR S&P Retail ETF
With AUM of $1.30 billion, SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index. XRT holds 107 securities in its basket with each accounting for not more than 1.72% of assets. Internet & direct marketing retail, apparel retail, automotive retail and specialty stores are the top four sectors with a double-digit allocation each.
SPDR S&P Retail ETF charges 35 bps in annual fees (read: ETFs to Buy on Fund Managers' Big Bet on U.S. Stocks).
VanEck Retail ETF
VanEck Retail ETF provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index. It is highly concentrated on the top three firms with a combined 41.4% share.
VanEck Retail ETF has amassed $249 million in its asset base and charges 35 bps in annual fees.
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SPDR S&P Retail ETF (XRT): ETF Research Reports
VanEck Retail ETF (RTH): ETF Research Reports
Amplify Online Retail ETF (IBUY): ETF Research Reports
ProShares Online Retail ETF (ONLN): ETF Research Reports
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