Consumer ETFs: Is Retail Worth A Second Look?

By Gary Gordon | August 26, 2008 | 2:21 PM | 2 Comments

Meat Loaf sang it in the late 70s... "Two Out of Three Ain't Bad." And while I may be dating myself here, the lyrics for this classic were too good to pass over.

"You'll never find your gold on a sandy beach." But you may find it with the Market Vectors Gold Miners ETF (NYSE: GDX).

"You'll never drill for oil on a city street." Yet you may drill for it with the SPDR Oil/Gas Exploration and Production (NYSE: XOP).

The problem is... both the metal miners and the oil drillers have taken a big time wallop as of late. Each has suffered bearish drops of 25%+ from their peaks. What's more, GDX and XOP have dropped into technical downtrends.

Naturally, these ETFs were supposed to be part of the energy and materials boom... the one that has fueled unprecedented global growth. Unfortunately, the IMF and other agencies are forecasting slower world growth... and many believe that the U.S. woes have all but triggered a worldwide recession.

Ahhhhh.... "But don't be sad. Cause 2 out of 3 ain't bad."

Two out of three, you ask? In this instance, I am talking about the much-maligned retail segment of the U.S. economy. There are 3 retail ETFs.... and 2 of them have year-to-date gains!!!

How can that be? Isn't the U.S. consumer strapped for cash? Hasn't all of the home equity money dried up? Haven't sky high gas prices and a horrific credit crunch... haven't they killed spending?

Maybe. Yet the markets look 6-9 months out into the future. And the markets may be looking at "beaten-like-a-bat-out-of-hell" retail as bargain city.

Take the PowerShares Dynamic Retail Fund (NYSE: PMR). It's up roughly 2% through 8/26/08. Or get a gander at the more widely known Retail HOLDRs (NYSE: RTH). It has amassed 3%. Both are above their 200-day, long-term trends.

Granted, this has been an inordinately rocky road. And were it not for a precipitous drop in the consumer discretionary sub-segment since the summer of 2007, when sub-prime first took root, bargain hunters might not be so eager.

Nor has everything been coming up roses. The SPDR Retail (NYSE: XRT) fund, which may be a better benchmark of across-the-board retail activity, hasn't quite made up its mind. It remains below its long-term trend, down -6% for 2008 AND -28% from 2007 highs.

Apparently, SPDR Retail (NYSE: XRT) is following the general path of consumer discretionary stocks. So don't expect a major breakout for XRT until the economic picture becomes a bit less hazy.

But if you're hell-bent on getting into the segment based on the strength of deep discounters like Wal-Mart and warehouses like Costco, the 2-outa-3 rule is working for PowerShares Dynamic Retail Fund (NYSE: PMR) and the Retail HOLDRs (NYSE: RTH). Valuations on the latter ETF seem a bit high, but companies in the fund such as Amazon and Wal-Mart are garnering growth-like premiums. 

 

Disclosure Statement:  ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

Interesting article, Gary. Interesting article, Gary. Thought I'd link here to a similar one I wrote recently on emerging markets consumers: http://www.greenfaucet.com/hanlons-pub/the-emerging-consumer-its-time/47247   Submitted by Chip Hanlon on Fri, 2008/08/29 - 12:58pm » reply |

Retail - Appearal I think you have to be really careful in this sector. J Crew's earnings and guidance were disappointing and I think the consumer is still reeling from this economic perfect storm we've had brewing for the past 9 or so months. Submitted by Anonymous (not verified) on Tue, 2008/08/26 - 4:20pm » reply |