Ahead Of Black Friday, Enthusiasm For Retail ETFs Wanes

On the back of some recent, dismal earnings reports from the retail sector, it is not surprising that exchange traded funds such as the SPDR S&P Retail ETF XRT are sagging. Nor is it surprising that investor enthusiasm for such ETFs is waning.

XRT, the largest dedicated retail ETF, has shed 5 percent over the past week and more than 6 percent over the past month, giving traders and investors good reason to mull the possibility of a lackluster holiday shopping season. Investors will get some more clarity on the state of affairs in the retail sector this week as giants Wal-Mart Stores, Inc. WMT, Target Corporation TGT and Best Buy Co Inc BBY report earnings.

Still, the outlook for Black Friday is concerning.

"According to a survey done by retail research firm Conlumino, 45% of shoppers said they planned to spend less on Black Friday this year than last year. Another 24% said they would spend about the same amount while only 18% said they would spend more," according to CNN Money.

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Just as concerning as its recent slump, is the fact that XRT has experienced $98.1 million in outflows this month. That could be a sign that investors are not bullish on apparel and specialty retailers this holiday shopping season. Those two retail segment's combine for more than 39 percent of XRT's weight. XRT's 14.7 percent weight to Internet retailers, including Amazon.com, Inc. AMZN, could prove helpful, XRT is an equal-weight ETF, meaning a single stock's impact on the fund is muted.

The Market Vectors Retail ETF RTH has been less bad than XRT in recent weeks, falling 1.7 percent over the past month. However, RTH's recent relative durability will be tested this week as Wal-Mart, Target and Best Buy combine for nearly 12 percent of the ETF's weight. Amazon can carry RTH because the stock is more than 15 percent of the fund's weight, meaning RTH has one of the largest Amazon allocations of any ETF.

RTH was last year's top-performing consumer discretionary ETF. Last month, S&P Capital IQ upgraded its recommendation on the consumer discretionary sector, citing "a combination of macroeconomic, fundamental and seasonal factors. Consumer discretionary joins health care and telecom services as overweighted sectors, relative to the S&P 500 index."

RTH has not lost any assets this month, nor have there been inflows to the ETF.