“There is so much less waste in the process for them now, Manning says, and this focus on inventory management may help physical stores perform better than expected.
Aside from XRT, there are five other retail ETFs, including one leveraged ETF, according to ETFdb. Only two are showing any gains for the year—the VanEck Vectors Retail ETF (RTH) is up 12.3 percent and the Amplify Online Retail ETF (IBUY) is up 39.5 percent. RTH has an expense ratio of 0.35 percent and IBUY’s expense ratio is 0.65 percent.
Fifty-five percent of RTH’s holdings are in three categories: drug retailers, department stores and discount stores. Its performance has likely received a boost from Amazon.com, its biggest single holding at 18.3 percent. Its second-largest holding is Home Depot, at 7.5 percent.
Not surprisingly, the top category for IBUY is internet services, at 28 percent. Department stores represent 19 percent of the fund, and other specialty retailers comprise 12 percent.
Manning says he’s surprised IBUY’s top individual holding is Overstock.com, at 4 percent, rather than Amazon. Amazon is in the top 10, but is only 3.5 percent of the fund. Manning says Overstock is often treated more as a bitcoin play than a retailer since the firm accepts bitcoin as payment.
Unlike in past years when investors could make a solid bet about retailers, this year comes with a lot of uncertainty regarding where consumers will shop and how much they will spend online versus offline, Manning says. Due to the potential structural shift in shopping habits, investors who want to make a retail play may have to be picky with their choices, too.
“This may be a year you look at individual retailers rather than buy an ETF of retailers,” he says.