Market Overview

Time to Shop For Retail ETFs? S&P Looks at Three


Black Friday has passed. Cyber Monday has come and gone, but with 24 days remaining until Christmas, the holiday shopping season is just getting ramped up. In a note out today, S&P Capital IQ says it expects total sales for the 2011 holiday season to jump 3%-4% from 2010 with online sales surging 15%, “driven by mobile-commerce, free shipping, favorable pricing and convenience. For more on our expectations for the 2011 holiday season.”

S&P notes March and February are two of the three best months for retail sales, so now might be the time for investors to look at retails stocks and ETFs to position their portfolios for a potential rally later this year and into early 2012.

Of course, there's no shortage of retail ETFs on the market today, but S&P examined three funds, zeroing in on those that included at least two of Amazon (Nasdaq: AMZN), Target (NYSE: TGT) and Wal-Mart (NYSE: WMT) among their top-10 holdings.

The three funds that made the cut were the Consumer Discretionary Select Sector SPDR (NYSE: XLY), the Vanguard Consumer Discretionary ETF (NYSE: VCR) and the iShares Dow Jones US Consumer Services Fund (NYES: IYC).

With almost $219 million in assets under management, the iShares Dow Jones US Consumer Services ETF is home to almost 200 stocks and an expense ratio of 0.47%.. The ETF, rated overweight by S&P, devotes more than 10.5% of its weight to Wal-Mart and Amazon combined and those two stocks are the ETF's largest and third-largest holdings, respectively.

Regarding XLY, the largest consumer discretionary ETF on the market with over $2 billion in AUM, S&P had this to say: “XLY's total return on a year-to-date basis through 11/28 is also favorable, at 1.1% (vs. -2.6% for Lipper Peers and -3.4% for the S&P 500). XLY receives an overweight assessment related to Cost Factors (thanks in large part to having an expense ratio of only 0.2%), but that is offset by an underweight assessment for Performance Analytics, with negative S&P Fair Value and S&P Technical factors. However, XLY does receive a positive input for S&P STARS within the Performance Analytics category.”

Amazon and Target combine for over 8% of XLY's weight as the ETF's second- and tenth-largest holdings, respectively. S&P rates XLY marketweight, the same rating given to XLY's most direct rival, the Vanguard Consumer Discretionary ETF. Amazon and Target are VCR's second- and ninth-largest holdings, but VCR's fees of 0.24% are higher than XLY's expense ratio of 0.2%.

Posted-In: Analyst Color Long Ideas News Sector ETFs Short Ideas Retail Sales After-Hours Center Markets


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