Retail ETFs are Looking Good Bets: Let’s Explore Why

The month of September remained weak, living up to its reputation of a seasonally weak period for the Wall Street. The Dow Jones Industrial Average has lost 3.9% in the month so far. The S&P 500 and the Nasdaq composite also decreased 3.7% and 3.6%, respectively, in the same month.

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There are certain factors like the Federal Reserve’s chances of tapering the fiscal stimulus support, rising inflationary levels, possibilities of a tax hike, spike in the coronavirus cases and China property market concerns that caused uncertainty in the investing world. Amid the current market environment, investors looking to park their money to likely rake in some good returns can consider the retail sector.

The latest retail sales data pleasantly surprised investors. The metric inched up 0.7% sequentially in August 2021 against the market expectations of a 0.8% decline, per a CNBC article. Online retail sales rose 5.3% last month after dipping 4.6% in July, per a Reuters article. There was an increase in the sales at clothing stores as well as for the building material and furniture in the previous month. Encouragingly, the core retail sales rebounded 2.5% in August from a downward revision of 1.9% in July, according to the Reuters article. The metric highlights the spending component of GDP.

The U.S. consumer sentiment also marginally improved despite the growing concerns about the surging coronavirus cases and the rising inflationary levels. The University of Michigan’s preliminary consumer sentiment inched up to 71 in September from 70.3 last month, per a BloombergQuint article.

Market analysts are expecting an impressive retail sales figure in 2021 along with a strong holiday season. The strength in consumer sentiment can be the major driving force as the same is believed to be prepared with enough res to splurge this holiday season after facing restrictions for more than a year.

The retailers are prepping for the start to 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 Mastercard SpendingPulse,  U.S. retail sales — excluding automotive and gas — for the “75 Days of Christmas” spanning from Oct 11 to Dec 24 are anticipated to increase 6.8% from the year-earlier tally.

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. Mastercard SpendingPulse predicts online sales to increase 7.5% during the “75 Days of Christmas” phase.

Going by a 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.

There is another positive development that can help boost the consumer sentiment. President Joe Biden outlined a very effective plan to increase the vaccination rate and control the outbreak. He made it mandatory for the federal employees to get the COVID-19 vaccination, per a CNBC article. The Biden government will also issue guidelines to the Labor Department for imposing vaccine mandates on the employers with more than 100 employees or run weekly tests.

Retail ETFs to Consider

Considering the strong trends, investors may park their money in the following retail ETFs to tap the sales boom. We presented those below:

Amplify Online Retail ETF IBUY

This ETF attracted $1 billion 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. The fund is home to 72 stocks, each accounting for less than 3.5% of its assets. IBUY charges 65 basis points (bps) in annual fees (read: ETFs to Win & Lose as Delta Variant Cases Surge).

ProShares Online Retail ETF ONLN

This ETF focuses on global retailers that derive significant revenues from online sales. It tracks the ProShares Online Retail Index, holding 25 stocks in its basket. ONLN accumulated $891.3 million in its asset base and charges 58 bps in annual fees.


With AUM of $1.10 billion, this product tracks the S&P Retail Select Industry Index, holding 108 securities in its basket with each accounting for not more than 1.1% of assets. Internet & direct marketing retail, apparel retail, automotive retail and specialty stores are the top four sectors with a double-digit allocation each. The fund charges 35 bps in annual fees (read:  August Retail Sales Shine: ETFs & Stocks to Win).

VanEck Retail ETF RTH

This fund 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 41.7% share. The product amassed $221.3 million in its asset base and charges 35 bps in annual fees (read: Retail ETFs Mixed on Blockbuster Q2 Earnings Wave).

First Trust Nasdaq Retail ETF FTXD

The fund follows the Nasdaq US Smart Retail Index and holds 51 stocks in its basket. Specialty retailers take the largest share at 39.6% share followed by diversified retailers (26%) and apparel retailers (8.8%). FTXD accumulated $24.9 million in its asset base and has an expense ratio of 0.60%.

5 Stocks Set to Double

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Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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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
First Trust NASDAQ Retail ETF (FTXD): ETF Research Reports
ProShares Online Retail ETF (ONLN): ETF Research Reports
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