Retail ETF for This Week’s Earnings
This week’s earnings calendar is dominated by big names in the retail industry. Investors looking for the strongest, long-term play on these companies should look to the SPDR S&P Retail ETF (XRT).
Before the bell on Tuesday, Sears (SHLD), Barnes & Noble (BKS), Macy’s (M), Target (TGT) and Office Depot (ODP) issued earnings reports documenting their performance throughout the most recent quarter. In all, the results have been optimistic. All five firms managed to beat analysts’ expectations.
One of the more notable highlights from today’s reports came from Sears. In the fourth quarter, the company saw its profit more than double from the prior year. Cost cutting and strong sales from its Kmart chains helped Sears post its best quarterly profit in three years.
Although today’s reports have been impressive, not everyone’s numbers have been as good. On Monday, Nordstrom (JWN) kicked off the week’s retail-fueled earnings calendar with less-than-stellar results. The luxury retailer’s revenue was considerably stronger than the previous year’s and in line with what analysts had predicted. However, expectations were high and the firm’s fourth-quarter earnings per share missed estimates by 2 cents.
Looking to the remainder of this week, investors can expect to learn how Limited (LTD) and TXJ fared on Wednesday. Gap (GPS), Kohl’s (KSS) and Safeway (SWY) are slated to report their own quarterly performance on Thursday.
XRT is designed to provide investors with broad exposure to top retail giants. In doing so, the fund takes a traditional consumer discretionary fund and blends in holdings often found within consumer staples ETFs. This allows investors to benefit from the upside potential of a company like Tiffany & Co (TIF) and American Eagle Outfitters (AEO), while holding more stabile firms such as CVS Caremark (CVS) and Wal-Mart (WMT).
According to the fund’s sector breakdown, 80% of XRT is dedicated to the consumer discretionary sector, while the rest of the index is represented by staples.
Aside from its distinctive sector breakdown, XRT benefits from its wide array of holdings. This fund tracks more than 60 different companies, providing plenty of diversification.
For instance, of all the retail firms reporting this week, SHLD is the only one that can be found among XRT’s top 10 holdings. However, despite the firm’s high ranking, it accounts for only 2% of XRT’s total portfolio.
Nordstrom, listed as the 45th largest holding in the fund, accounts for 1.5% of the instrument’s portfolio.
In the past month through Feb. 22, XRT’s unique investing strategy has paid off. Its 6% returns have trumped those of more traditional consumer staples and consumer discretionary ETFs like the Consumer Staples Select Sector SPDR Fund (XLP) and the Consumer Discretionary Select Sector SPDR Fund (XLY), which have returned 3% and 4%, respectively.
Investors looking for a retail holding for this earnings season and beyond should keep their eye on XRT. Although its near equally weighted portfolio prevents it from seeing any large moves, its unique take on the consumer industry is ideal for investors looking for a long-term holding that will see stable growth.
