Target Relieves Some Pain Of Retail ETFs
Zacks Investment Research | Jul 14, 2017 12:38AM ET
The retail sector received a much-needed boost on July 13 as stocks logged their best XRT was up over 2.3% on the day while its year-to-date return is still in the red. With Thursday’s stellar returns, the fund is now down about 9.4% in the year-to-date frame (as of July 13, 2017).
Credit Goes to Target Corp. (NYSE:TGT)
Target Corp. (TGT) guides sales to grow for the first time in five quarters, backed by higher traffic and improving sales trends . Target raised its expectations for comparable store sales to a modest increment for the current quarter from the previous forecast of negative comps. Earnings are now projected above the high end of Target’s forecast of $0.95–$1.15 per share. TGT was up about 4.8% on July 13.
The news acted as a cornerstone for the entire space. Hint of improvement in traffic to a brick-and-mortar retailer spurred hopes of a trend reversal in the overall retail space.
Inside Brick-and Mortar’s Constant Pain
The sector as a whole has so far been under pressure. After witnessing decent growth in January, U.S. retail sales recorded a decline in February, a moderation in March, a lukewarm improvement in April, and a slight drop in May (read: 5 ETFs & Stocks: Silver Lining in Soft May Retail Sales ).
Disappointing earnings results were noticed from several traditional brick-and-mortar operators lately while web-based shopping surged. As of now, online retail sales make up IBUY is up over 33% so far this year.
Notably, the online e-commerce behemoth Amazon (NASDAQ:AMZN) just saw a record third annual Prime Day. This was the biggest shopping day in the company’s history, surpassing Black Friday and Cyber Monday (read: Amazon Prime Day Hits Record: 5 Best ETF Deals ).
Other Retail Stock Winners Post Target-Induced Boost
On July 13, several retail stocks were on a tear. J. C. Penney Company (NYSE:JCP) (up 7.8%), Macy's (NYSE:M) (up 4.1%), The Gap (NYSE:GPS) (up 5.6%), American Eagle Outfitters Inc. (NYSE:AEO) (up 4.6%), Sears Holdings Corporation (NASDAQ:SHLD) (up 7.2%), Dillard's, Inc. (NYSE:DDS) (up 6.3%), Kohl's Corporation (NYSE:KSS) (up 4.8%) are some of the winners.
Why These ETFs to Play
Investors should note that the Zacks Industry Rank for discount retailers is in top 38%. The Zacks Industry Rank for catalog shopping is in top 1%. Agreed, there are a lot of corners in the retail space that are in the bottom section, but if Target’s indication proves right for the whole space, investors can play the below-mentioned ETFs.
XRT in Focus
This product tracks the S&P Retail Select Industry Index, holding about 100 securities in its basket with none accounting for more than 1.49% of assets. Apparel retail takes the top spot at 21.6% share while internet & direct marketing retail, specialty stores, and automotive retail round off the next three spots with a double-digit allocation each. It has a Zacks ETF Rank #2 (Buy) (read: Amazon's Foray Into Grocery to Hurt/Help These Stocks & ETFs ).
Get The News You Want
VanEck Vectors Retail ETF (V:RTH)
This fund provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index. It is highly concentrated on the top firm – Amazon – at 19.8% while other firms hold less than 5.33% share. The fund is a mix of consumer discretionary and staples stocks with the former accounting for about 60% of the fund and staples taking about 30% share. The fund has a Zacks ETF Rank #1 (Strong Buy).
PowerShares Dynamic Retail Portfolio (LON:PMR)
This fund follows the Dynamic Retail Intellidex Index. In total, the product holds 30 securities with each holding less than 5.34% of assets. In terms of industrial exposure, specialty retail takes the top spot. The fund has a Zacks ETF Rank #3 (Hold).
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