Retail ETFs

Average returns in this Category	3 months return	6 months return	12 months return	YTD return

Retail	13.78%	40.58%	-5.17%	34.82%

Ticker SPY	Name	3 months return	6 months return	12 months return	YTD return

PMR	Powershares Dynamic Retail Portfolio ETF	9.47%	32.24%	-4.17%	25.45%

RTH	Retail HOLDRS ETF	12.18%	31.08%	-10.69%	16.92%

XRT	SPDR S&P Retail ETF	19.7%	58.43%	-0.66%	62.08%


	About Retail ETFs
Retail ETFs Overview and forecast The retail sector went through a very tense time in the last quarter of 2008, and has been sensitive since the big job losses in 2008 and early 2009. Being already very reactive to moves in the domestic economy, the retail sector has received the double whammy of the credit crunch as well. The Retail ETFs, however, have been proving a bit more resilient than might have been expected, given the sudden crash in disposable incomes across the US. They've been rebounding quietly to positive returns. Their returns, in fact, have been above the average for the last 6 months. The moves are partly a result of the asset mixing. Some retailers, like Amazon, have been part of the furniture on indices for years now, but nobody quite knew how their stocks would behave in a real bear market. These holdings are behaving very like blue chips, retaining value at low market levels. That behavior is apparently backing up the Retail ETFs' prices. For the most severe bear market since the Great Depression, that's not a bad performance. The faithful old stagers like Wal Mart and Home Depot, if not doing too spectacularly on the market themselves, are also adding weight to the Retail ETFs' holdings. The investment culture of the retail sector is one of the primary keys to understanding how the Retail ETFs are behaving. This is traditionally, and usually rightly, one of the safe investment sectors. Almost the only thing that affects the retail sector is the economy. The prices aren't as volatile, in normal markets, and the returns in the form of dividends and trading margins are pretty respectable, and reliable. Short term (6 months) Assuming there's no more major shocks to the market or the economy in 2009, the retail sector may well be the first to return to normal investment patterns. Expectations for the economy in the short term aren't high, and a steady performance by the sector will be enough to encourage investment. It is arguable that retail stocks are undervalued, because of the demand among investors for trustworthy stocks. Home Depot and Wal Mart are hardly the glamour element in anyone's portfolio, but they are solid. That's what's missing from the market at the moment, and there's a demand for stocks with some stamina. A good quarter result will be enough to raise stock prices. Medium term (2 years) If the short term is looking positive for the Retail ETFs, the medium term is much more so. The retail stocks are usually good if unspectacular performers in bull markets, but in the bear markets, the difference between peak prices and their bear market prices is always on the mind of both traders and capital investors. The usual result is that the retailers return to their peaks, and improve. They are, in that sense, typical market performers. There is real value, sometimes huge value, for the big investment machines in the retail sector, because of this consistency. That's good news for private and middle level investors, because the mid range (bandwidth) buying programs of major investors drive up values by the level of demand. Several funds, buying the same stock, are good news for everyone in the market. For the Retail ETFs, there are many possible upsides. Long term (5 years) In normal markets, retail stocks suffer in comparison with others by rarely if ever being fashionable. There are some indications that's going to change in coming years, with staples like food and other baseline consumer goods tipped to become high performers on a demand basis. Investors will believe these predictions when they see it, and stick to actual performance and market trends backed by actual money. But it's quite reasonable to think that the retail sector as a whole is going to get stronger over time. It's a core component of the main index. Many of the biggest companies on Earth, which provide the ballast for the global indices are in the retail sector, or closely related suppliers. The retail sector is an indicator for the rest of the market, and its role in the economy goes beyond providing shops, goods and services. The retail sector is usually holding the order books and pay packets of the rest of the index. Any economic recovery, in real terms will show up in retail, almost instantly. Orders will rise, turnover will rise, and the jobs sector will start showing increases in services jobs. Retail ETFs will be among the first beneficiaries of a recovery. Qualifiers to projections The retail sector is strong, but not risk free. The sector is hypersensitive to job numbers, confidence, and the state of the wider domestic economy. It would be absurd to claim that the sector doesn't have a few thorny issues of its own caused by the meltdown and credit crunch. Many big retailers, aware of that fact, have been pulling the plug on new stores and new ventures. The sector, in fact, has quite rightly been in lock down mode for a while, in terms of even mentioning capital expenditure. Retail is a very high capital business sector. Because of capital exposure, debt, and general cost structuring, some retailers will have returns with a definite limp to them, where no limp would be expected. The sudden slump in the domestic economy is quite capable of producing anomalies caused by rapid declines in revenue among the retailers. Debt is a potential issue, and overheads are another. For the giant retailers, a bit of relatively minor pruning has been the response, but others may not be doing so well. In some retail areas, like home improvements, there has been actual shrinkage, and that will show up in stock prices. That adds up to some stocks which won't be performing too brilliantly, among the holdings of the Retail ETFs. The ETFs on the whole are expected to be strong, but this gift horse will need every tooth examined.

Last Updated on: 2010-01-14 02:03:40

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