Best Retail ETF for Holiday Season (XRT, PMR, RTH, AMZN, WMT)

The National Retail Federation (NRF) is forecasting holiday sales (November-December) to increase by 3.9 percent over last year to $602.1 billion.

The expectation is higher than last years 3.5 percent gain and above the 10-year average of holiday sales growth of 3.3 percent.

The government shutdown and dismal jobs situation apparently will not slow down the resilient American consumer. Whether times are good or bad, the consumer likes to get out and spend money on loved ones during the holiday season.

Attempting to choose the retailer that will outperform not only in sales, but also in stock appreciation is a difficult task. An alternative to that strategy is to consider a retail ETF that will offer a basket of retail-focused stocks. There are three ETFs that concentrate solely on retail stocks and each vary based on holdings and performance.

SPDR S&P Retail ETF XRT

The largest retail ETF with $953 million in assets is composed of 99 stocks from a variety of retail sub-sectors. Apparel retail stocks make up 28 percent of the portfolio, followed by specialty stores, automotive retail, and Internet retail. The top holdings are drug store Rite Aid RAD, The Men’s Wearhouse MW, and Office Depot ODP. Three retailers that are not necessarily considered hot spots for the holiday shopping season.

The ETF charges an annual expense ratio of 0.35 percent and pays a 0.46 percent dividend. Year-to-date the ETF is up 41 percent and it is currently trading at an all-time high.

PowerShares Dynamic Retail Portfolio ETF PMR

This retail ETF has been able to slightly outperform XRT, with a gain of 42 percent in 2013 and it is also trading at an all-time high. The ETF has a more concentrated asset allocation with only 30 stocks in the portfolio. The top 10 holdings account for 47 percent of the entire ETF with the top stock making up 5.4 percent. The top three holdings are Walgreens WAG, Best Buy BBY, and Kroger KR.

The electronics sector is always a hot sector during the holiday season and BBY is the leader in the category. Wal-Mart WMT is also a top holding for PMR that will typically be a holiday shopping destination. The annual expense ratio is 0.63 percent and the dividend yield is 0.84 percent.

Market Vectors Retail ETF RTH

A basket of 26 retail stocks that is heavily concentrated in the top ten holdings (59.4 percent) and on companies that have exposure to the holiday shopper. The top holding, Amazon.com AMZN makes up 9 percent, followed by WMT at 8 percent. The ETF has lagged its peers slightly this year with a gain of 39 percent, but it is sitting at a new all-time high. The annual expense ratio is 0.35 percent and the dividend yield is 0.35 percent.

When choosing the best-positioned retail ETF for the holiday season the number one factor becomes the portfolio makeup. RTH appears to be the best positioned with AMZN taking up 9 percent of the portfolio. According to Shop.org, online holiday sales are expected to increase by 13 to 15 percent this year. Having the online retail giant as the number one holding is a bonus and WMT number two makes RTH the most heavily reliant on holiday sales.

This is a time where the laggard so far this year is the best bet heading into the last six weeks of 2013.