What Are Retail Industry Exchange Traded Funds?
What to consider before investing
If you are looking for a way to invest in retail industry stocks, buying one of the best retail exchange-traded funds (ETFs) may be a smart way to capitalize on that sector. But before deciding on a retail sector fund, you should learn the basics of investing in this industry and what to look for when choosing retail ETFs.
What Are Retail ETFs?
Retail industry ETFs are exchange-traded funds that invest in stocks of companies within the retail industry. Examples of retail businesses include apparel stores, automotive retailers, home improvement, computer and electronics stores, department stores, drug retailers, food retailers, internet/online retailers, and specialty stores. Some of the largest retail stocks, and their ticker symbols used for market trading, include Amazon (AMZN), Home Depot (HD), and Walmart (WMT).
Despite many brick-and-mortar retail stores suffering closures and setbacks nationwide, most of these funds also contain the shares of online retailers, which are profiting by offering shoppers a customized and convenient alternative.
How to Choose the Best Retail ETFs
In general, when buying ETFs of any kind, investors are wise to review certain qualities of the fund, such as assets under management (AUM) and expense ratios. There are also some specific qualities to consider with retail ETFs before selecting the best fund for you.
Here are a few things to think about when choosing the best retail ETF for your needs.
- AUM: ETFs with higher AUM are preferred by investors over ETFs with lower AUM. This is because more assets generally translates to greater liquidity, which translates to less volatility in price (lower bid/ask spread).
- Expense ratio: Most ETFs passively track an underlying index. Therefore, all other things being equal, and comparing two retail ETFs that track the same index, the fund with the lowest expense ratio may have greater performance, especially in the long term. However, if the two funds you are comparing invest in different indexes, lower expenses are still beneficial, but the underlying holdings may have a greater impact on the performance.
- Holdings: To look for specific retail stocks you’re interested in, review a fund’s holdings (stocks owned in the fund). ETFs with a greater number of holdings can also provide more diversification and less volatility versus more narrowly focused funds.
- Industry focus: Retail industry ETFs are thematic, which means they may invest in certain niche areas of retail. In different words, retail ETFs can specialize in specific sub-industries, such as apparel and department stores, or they may diversify across multiple sub-industries within the broader retail industry.
- Performance: Although past performance is no guarantee of future results, reviewing past annualized returns can give you an idea of what to expect in the future with retail stocks. You can also get an idea of how volatile the price movements up and down are for the stocks held by the ETF you’re considering.
Use an online ETF screener to learn more about the fund before you invest.
Retail ETFs to Consider for Your Portfolio
There are roughly a dozen ETFs focusing on retail stocks to choose from in U.S. markets. Based on the criteria outlined above, here are four ETF options to consider buying for your portfolio if you’re interested in investing in retail ETFs. AUM and expense ratios were current as of Feb. 18, 2020:
- SPDR S&P Retail ETF (XRT): With about $213.9 million in assets under management, XRT offers exposure to many sub-industries within the retail industry, including apparel, drug retailers, department stores, and computer and electronic retailers. XRT holds 87 stocks in the industry, making it a diverse retail fund. The expense ratio for XRT is 0.35%.
- Amplify Online Retail ETF (IBUY): At $250.5 million AUM, IBUY is a large retail ETF. The portfolio consists of 47 retail stocks that concentrate primarily on retailers that generate income from online and virtual sales. The expense ratio is 0.65%, or $65 for every $10,000 invested.
- VanEck Vectors Retail ETF (RTH): RTH has $91.5 million in assets and is relatively concentrated, with just 25 holdings, mostly among the largest retailers, such as Amazon, Home Depot, and Walmart. The expense ratio for RTH is 0.35%.
- ProShares Online Retail ETF (ONLN): If you are looking for a focus on online retailers, such as Amazon and Alibaba (BABA), ONLN may be a retail ETF to consider adding to your portfolio. AUM is $28.4 million and the expense ratio for the fund is 0.58%.
The retail sector of the economy can be a potential investment opportunity. And what better way to gain access to the retail industry than through a retail ETF. Whether you are bullish or bearish on the sector, you can still use an ETF to execute your investment strategy. You can buy or sell a retail fund, and gain instant exposure to the industry, without having to corner the market on individual retail stocks or chase prices in an index basket.
And when buying a retail ETF, you also get the added benefits of ETFs in general. ETFs can help you save money on commissions and fees as well as enjoy many tax advantages. So, if you want to explore the retail sector, consider adding a retail ETF to your portfolio. However, make sure to thoroughly research each fund before making the best choice for your investment needs.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
ETF.com. "Retail EFT Channel." Accessed Feb. 19, 2020.
State Street Global Advisors. "SPDR® S&P® Retail ETF." Accessed Feb. 19, 2020.
Amplify ETFs. "Amplify Online Retail ETF." Accessed Feb. 19, 2020.
VanEck. "VanEck Vectors Retail ETF." Accessed Feb. 19, 2020.
ETF.com. "ONLN, ProShares Online Retail ETF." Accessed Feb. 19, 2020.