Inside the Top Zacks Ranked Retail ETF - ETF News And Commentary
21 Febrero 2013 - 8:41AM
Zacks
The market at large is improving this year with the S&P 500
and Dow Jones reaching new highs on improving global sentiment.
While financials have led the way, a number of other sectors have
also performed admirably this year such in health care and
energy.
The retail sector has also performed remarkably well
year-to-date (read: 5 Sector ETFs Surging to Start 2013). This
trend suggests a bullish run with widespread positive sentiment
throughout the equity world.
The retail sector is poised to benefit from an improving
economy, an increase in consumer spending and growing employment. A
recovery in the auto and housing market should fuel further growth
in the U.S. retail sector.
This is evident by the December sales number which grew 4.1%
year over year. This is a far better than the summer low of 3.5%
but still a long way from 9.2% achieved 18 months back. The
recovery in sales is yet to match the earlier highs.
While some are concerned over recent tax increases and high gas
prices in the U.S. market, this hasn’t really trickled down into
consumer confidence yet. Furthermore, with surging home prices and
an improved employment situation many could be feeling better about
the economy, even with these negatives (read: Time to Buy Retail
ETFs?)..
This suggests that retail could still have some room to run, and
that these firms could benefit from overall positive market trends.
Given this, a look at the top ranked ETFs in the space could be a
good idea. One way to find a top ranked ETF in the retail space is
by using the Zacks ETF Ranking system.
About the Zacks ETF Rank
This technique provides a recommendation for the ETF in the
context of our outlook of the underlying industry, sector, style
box or asset class. Our proprietary methodology also takes into
account the risk preferences of investors as well.
The aim of our models is to select the best ETFs within each
risk category. We assign each ETF one of the five ranks within each
risk bucket. Thus, the Zacks Rank reflects the expected return of
an ETF relative to other ETFs with a similar level of risk.
Using this strategy, we have found one ETF in the space –
SPDR S&P Retail ETF
(XRT) – that has a Zacks
Rank #2 (Buy). We expect it to outperform its peers in the
high-risk tolerance bracket when compared to other funds in the
segment (see more ETFs in the Zacks ETF Center).
XRT: A Solid Choice in Retail Space
Launched in January 2006, the fund has emerged as a strong
winner in the retail space, producing more than 93% return over the
past three years. The product seeks to match the price and yield of
the S&P Retail Select Industry Index, an equal weighted index.
XRT is by far the largest and most popular fund in the retail
space.
The product holds a great deal of securities, about 98, and
offers wide diversification across individual holdings as no single
firm makes up more than 1.7% of XRT. These securities are again
well spread between growths and blend style. This ensures
concentration risk of just 2.39%. Netflix
(NFLX), Rite Aid
(RAD) and
Supervalu (SVU)
are the top three holdings in the fund’s portfolio.
Though the ETF charges 35 basis points per year in fees from
investors, expense ratio is considered the lowest in the category.
Additionally, the fund is extremely liquid as it trades in higher
volumes of more than 4 million shares per day. This suggests that
investors do not have to pay an extra cost in the form of bid/ask
spread at the time of trading.
The product has been able to manage assets of $754.5 million,
returning more than 6% year-to-date. In fact, this return is higher
than the returns from the S&P 500 fund (SPY) by roughly 140
bps. XRT also generated impressive returns of about 20.8% last year
and yields a good 1.54% in annual dividends (read: 3 ETFs at the
Heart of The Recent Rally).
Further, the ETF has significant correlation with the S&P
500, as indicated by R-Squared of 67.87%. It is constantly
outperforming its benchmark index, as depicted by positive
alpha.
XRT: A Focused Product
The fund allocates about half of the assets to small/micro cap
firms, which tend to be highly volatile than the large and mid
counterparts. Large and mid caps account for the remaining portion
of the basket (read: Mid Cap ETFs Leading the Market in 2013).
Small cap securities tend to have less correlation with the
macroeconomic trends and have less international exposure than the
large cap counterparts. So, these securities rely more on the
domestic economy. If the international economy performs better than
the domestic economy, then small cap stocks can underperform.
From a sector perspective, specialty retail takes the top spot
in the basket with 61% share, followed by departmental stores
(12%), Internet and catalog retail (11%), food retail (9%), drug
stores (4%) and hypermarkets (3%). This indicates its heavy
reliance on a particular sector.
As a result, XRT might experience levels of volatility, making
it a high risk tolerance product.
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SPDR-SP RET ETF (XRT): ETF Research Reports
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