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US Retail Rise: ETFs In Focus

By Kurt Osterberg · On April 17, 2018

U.S. retail sales picked up in March after declining for three straight months, as consumers bought more motor vehicles and other expensive items, reflecting a revival in consumer spending owing to tax cuts and refunds. Eight of 13 major retail categories showed improvement.

Into the Headlines

Overall retail sales increased 0.6% in March, after 0.1% drop in each of the previous three months. Excluding automobiles, gasoline, building materials and food services, core retail sales ticked up 0.4% in March after remaining unchanged in February. Core retail sales are most closely aligned with the consumer spending component of GDP.

Consumer spending accounts for over two-thirds of the U.S. GDP, which seems to have slowed in 2018. It grew 4.0% year over year in the fourth quarter of 2017 but tepid wage growth in February might have dented purchasing power. However, given the recent positive numbers, analysts believe the U.S. economy is entering the second quarter with great momentum, after a harsh winter marred purchasing power for big-ticket items at the beginning of 2018.

In March, auto sales rose 2.0% after a 1.3% drop in February. Moreover, sales at furniture stores increased 0.7% while electronics and appliances stores witnessed an increase of 0.5%. However, sales at building material stores declined 0.6% in the month while receipts at clothing stores fell 0.8%. Moreover, gas station sales dropped 0.3% in the month, the steepest since July.

Let us now discuss a broad ETF providing exposure to the retail space.

SPDR S&P Retail ETF (XRT – Free Report)

This fund focuses on providing exposure to the U.S. retail industry that looks to benefit from improved consumer sentiment. It has AUM of $358.1 million and charges a fee of 35 basis points a year. It has an allocation of 2.0% to Guess Inc (GES – Free Report) , 1.6% to Finish Line Inc. Class A (FINL – Free Report) and 1.6% to Abercrombie & Fitch Co. Class A (ANF – Free Report) . The fund has returned 9.4% in a year. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.