Black Friday is one of the most important days on the U.S. retail calendar, and the coronavirus pandemic guarantees this year's Black Friday be unlike any other.
With COVID-19 cases trending higher across the country and renewed shutdown policies forcing temporary closures of non-essential retailers, the likelihood of the annual tradition of shoppers barnstorming stores on Black Friday is diminished.
That doesn't mean the opportunity is diminished for investors. While the brick-and-mortar retail sector is grappling with record bankruptcies and store closures in 2020, many of the larger players are becoming credible online retail forces, and that evolution should pay dividends this year, as consumers still want to shop. They simply want to do so from the comfort of their homes.
With that in mind, here are some exchange-traded funds that could shine bright this Black Friday.
VanEck Vectors Retail ETF (RTH)
The VanEck Vectors Retail ETF RTH is a focused ETF, as it's home to just 25 stocks, but it's highly relevant for multiple reasons. First, the bulk of its brick-and-mortar holdings, such as Target TGT and Walmart WMT, are increasingly prominent online retail players.
Second, several other RTH components, including Home Depot HD and Costco COST, are considered essential retailers.
Third — and this is an important one — RTH sports an 18.14% weight to Amazon AMZN, one of the largest such allocations among all ETFs. Bottom line: RTH covers a lot of bases for investors this holiday shopping season and beyond.
First Trust Nasdaq Retail ETF (FTXD)
The First Trust Nasdaq Retail ETF FTXD tracks the Nasdaq US Smart Retail Index, which isn't a run-of-the-mill cap-weighted retail benchmark. Rather, the index scores companies based on trailing 12-month volatility, value as measured by price-to-growth and growth as measured by price appreciation over the last three, six, nine and 12 months.
FTXD's methodology leads to a broad basket by retail ETF standards – 50 stocks to be precise. The fund features exposure to seven retail sub-segments with specialty and broadline retailers combining for over 54% of the ETF's roster.
FTXD does an admirable job of mixing land-based and online-only retailers with Walmart and Amazon combining for about 13% of the fund's weight. Even with that, the median market capitalization of FTXD member firms is just $14.7 billion, indicating the fund is levered to mid-cap retailers.
SPDR S&P Retail ETF (XRT)
With so many retail bankruptcies and store closures, it feels as though the obituary for the SPDR S&P Retail ETF XRT has been penned multiple times in recent years, but this Black Friday play is up 32.12% year-to-date.
These days, XRT has a nearly 23% weight to online retailers, which is a positive trait. With time, the fund's exposure to department store retailers, a troubled group, has diminished to below 5%.
That means the lay of the land with XRT is that if apparel and specialty retailers — one-third of the fund's roster — can keep recent momentum, this fund could deliver on Black Friday and beyond.
Photo courtesy of Walmart.
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