Time To Buy Retail?

By Traders Huddle | February 15, 2012 AAA

By Todd Shriber

New York, February 14 (TradersHuddle.com) - In case you're not a fan of diligently sifting the deluge of economic data that comes out on a weekly basis, let's make things easy and say that if you want to take to the temperature of the U.S. consumer, keeping an eye on some retail ETFs is an excellent and more exciting way of gauging consumer sentiment than reading bland economic stories.

A fine place to start or finish for that matter in the hunt for retail ETFs is with the Market Vectors Retail ETF (NYSE: RTH). The Market Vectors Retail ETF is sort of a new version of an old ETF as Van Eck, parent company of Market Vectors, purchased six of the old HOLDRs ETFs and converted them to Market Vectors funds last year. RTH was among that group.

Under its old composition as a HOLDRs fund, RTH was excessively weighted to just a couple of big retail stocks and that probably stymied asset growth. RTH has been around for a few years but still has less than $49 million in assets under management. Investors should note a couple of things about RTH. First, the ETF recently underwent a three-for-one split. Second, it is a much better ETF as a Market Vectors ETF.

Home to 26 stocks, RTH devotes approximately two-thirds of its total weight to its top-10 holdings and at least nine of those stocks can be called "familiar" or "everyday" retail names. Dow components Wal-Mart (NYSE: WMT), the world's largest retailer, Home Depot (NYSE: HD), the largest home improvement retailer, are RTH's top two holdings and combine for over 18% of the ETF's weight. Other top-10 holdings include Amazon (NASDAQ: AMZN), Target (NYSE: TGT), CVS Caremark (NYSE: CVS) and Costco (NASDAQ: COST).

Bottom line: Even though RTH isn't home to a lot of stocks, it does an admirable job of spreading its weight around among staples, discretionary and technology plays.

However, it must be acknowledge that there's no shortage of rival funds on the market. RTH battles with the iShares Dow Jones US Consumer Services ETF (NYSE: IYC), the Consumer Discretionary Select Sector SPDR (NYSE: XLY), the SPDR S&P Retail (NYSE: XRT) and to a less extent, the Consumer Staples Select SPDR (NYSE: XLP) for investor assets. And that list is not the entire list of retail or discretionary ETFs.

With an expense ratio of 0.35%, RTH compares favorably with rival funds, but its AUM total and number of holdings put the ETF toward the bottom of retail ETF group. RTH's liquidity is good and the ETF is optionable and shortable. The reality is with so many ETFs focusing on big name retailers, the best way of selecting from the bunch is performance and if RTH find itself in the upper echelon when it comes to returns, its AUM total will almost certainly flourish.

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