Holiday Shopping Season Lines Up Nicely For Retail ETFs

Black Friday and Cyber Monday are in the books, but there's still plenty of time left for retail stocks and the related exchange traded funds to gain investors' favor this holiday season.

Down more than 11 percent in the fourth quarter, the SPDR S&P Retail ETF XRT could use some holiday cheer.

What To Know

Investors often expect things out of consumer discretionary and retail stocks at this time of year. In 2018, the calendar could be an assist to XRT and rival retail ETFs.

“The 2018 calendar sets up nicely for retailers, as it gives holiday shoppers ample opportunity to get their gift-buying done with time to spare,” said IHS Markit in a recent note. “Since Thanksgiving Day falls on its earliest possible date of 22 November, that leaves the maximum 32 shopping days (including five full weekends) between then and Christmas. That means some consumers will have an extra paycheck or more to work with ahead of the holidays. This alone will be a slight boost for holiday sales numbers.”

As highlighted by Cyber Monday sales, retailers are off to strong starts this holiday season.

Why It's Important

XRT is an equally-weight ETF with 95 holdings. Industries represented in the fund include the following: Apparel Retail, Automotive Retail, Computer & Electronic Retail, Department Stores, Drug Retail, Food Retailers, General Merchandise Stores, Hypermarkets & Super Centers, Internet & Direct Marketing Retail, and Specialty Stores, according to the issuer.

While XRT is heavily expose to brick-and-mortar retailers, the fund allocates 17.63 percent of its weight to Internet retailers, a potential advantage at a time when online holiday shopping is booming. Holiday season online sales are expected to have more than tripled from 2000 through 2018, according to Markit data.

“Online holiday retail sales will continue to outperform other channels, as their share of total holiday retail sales will grow to 18.9% from 17.8% last year,” said the research firm.

What's Next

While the 2018 holiday shopping season is expected to be strong, rising interest rates and the recent equity market decline could be weighing on shoppers' and investors' minds.

“This could be enough to make 2018 a good year instead of a great year for retailers,” said Markit. “Taking all this into consideration, we have lowered our holiday retail sales forecast from 4.7% to 4.4% growth.”

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