Retail Stock ETF's for Your List

ETF's can help you invest broadly in the retail sector at reasonable fees.

One of the most popular investment vehicles in recent years has been Exchange-Traded Funds, or ETF's. Similar to mutual funds, ETF's offer investors the opportunity to diversify their investment dollars among a wide range of stocks, bonds, or commodities. Unlike mutual funds, ETF's are usually passively managed. This means the fund manager will only make occasional adjustments, and may simply look to match a market index or sector, which keeps fees low. 

With that said, ETF's can allow you to invest in retail stocks while still having the safety of diversification. The following are three of the best retail ETF's available; all three have the following characteristics that you should demand out of all ETF investments.

  1. Low fees: All of the retail ETF's mentioned have an expense ratio below 1%. Since the advantage of passively managed funds is lower fees, anything higher than this amount is questionable. 
  2. Non-leveraged: Some ETF's use debt or derivatives to double or triple the moves for a sector. A heavily leveraged retail ETF may rise (or fall) 6% on a day when the sector rises (or falls) 2%. Since we seek a safe, passive, investment strategy, rather than a trading strategy, leverage is no good. 
  3. Reputable fund families: The retail ETF's we've listed are part of the SPDR (S&P) or PowerShares (Invesco) family of funds, which have a strong track record as ETF managers. 

Without further ado, here are three ETF's for retail stock investors. 

1
SPDR S&P Retail ETF

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Pascal Le Segretain/Getty Images News/Getty Images

Ticker symbol: XRT

Expense ratio: 0.35%

P/E ratio: 19.22

P/S ratio: 0.61

Dividend yield: 0.92%

Morningstar rating: 4 stars (out of 5) 

1-year return: up 16%

Top holdings: This fund seeks to match the performance of the S&P Retail Select Industry Index. It is "equal weighted," meaning it invests nearly similar amounts in all of its stocks, regardless of their market cap. It's a nice fund to hold if you want to hold equal parts of a wide range of retailers, from Amazon.com to Kohl's. More than anything this fund provides diversification, and the ability to invest in retail broadly.

Below are the top holdings and the percentage of assets they represent. 

  1. Conn's Inc.-1.38% of assets
  2. Netflix-1.32% of assets
  3. Rite Aid Corp-1.31% of assets
  4. Orbitz Worldwide-1.29% of assets
  5. JC Penney-1.24% of assets

2
Consumer Discretionary Select Sector Fund

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David McNew/Stringer/Getty Images News/Getty Images

Ticker symbol: XLY

Expense ratio: 0.15%

P/E ratio: 19.41

P/S ratio: 1.57

Dividend yield: 1.32%

Morningstar rating: 4 stars (out of 5) 

1-year return: up 15.24%

Top holdings: This fund tracks a consumer discretionary index; it invests 80% of its assets in consumer cyclical stocks. In other words, it is not investing in defensive retail stocks. The fund seeks the stocks that sell discretionary items, not necessities.  The fund holds a larger percentage of assets in its top holdings, which are detailed below. 

  1. Walt Disney Co.-6.97% of assets
  2. Comcast Corp Class A-6.56% of assets
  3. Home Depot Inc.-6.49% of assets
  4. Amazon.com Inc.-6.20% of assets
  5. McDonald's Corp.-4.13% of assets

3
PowerShares Dynamic Retail Portfolio

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Joe Raedle/Getty Images News/Getty Images

Ticker symbol: PMR

Expense ratio: 0.64%

P/E ratio: 19.86

P/S ratio: 0.64%

Dividend yield: 0.82%

Morningstar rating: 4 stars (out of 5) 

1-year return: up 21.95%

Top holdings: This fund seeks to track a portfolio of 30 traditional, large, brick-and-mortar retailers. So this is for investors who seek drug stores, big-box chains, and warehouse clubs. Given the more niche nature of this retail ETF, it is less diversified than the others. Below are the fund's five largest holdings.

  1. Walgreens Boots Alliance Inc.- 5.74% of assets
  2. Kroger Co.-5.64% of assets
  3. Lowe's Companies Inc.-5.50% of assets
  4. Ross Stores Inc.-5.48% of assets
  5. O'Reilly Automotive Inc.-5.40% of assets

The PMR also holds large positions in Wal-Mart, Costco, and Office Depot. 

These funds are just a small sampling of the retail stock ETF's that are available. While ETF's can make for wonderful investments, they trade like stocks, and can be bought and sold quickly. This makes ETF's potentially dangerous; so have a plan before investing and stick to it. Never buy an ETF, retail stock, or any investment without doing your own homework.