What is a 'Retail Industry ETF'

A retail industry ETF is an exchange-traded fund investing in companies that sells retail merchandise to consumers.

BREAKING DOWN 'Retail Industry ETF'

A retail industry ETF, as with other index ETFs, aims to match the investment performance of its underlying index. A retail industry ETF includes brick-and-mortar retailers as well as online merchants, and can be found across many industries, including home improvement and furnishing stores, warehouse clubs and superstores, department stores and discount stores, and specialty stores and boutiques selling apparel, electronics, accessories and footwear.

A retail industry ETF’s performance correlates with the current economic level of consumer confidence. Therefore, a retail industry ETF performs best when consumer spending and the economy are robust, and performs poorly when they are depressed. Retail sales are a monthly economic indicator in the United States. The U.S. Census Bureau and the Department of Commerce compile data and release a retail sales report approximately two weeks after the month-end that covers the prior month. Year-against-year comparisons are an especially important metric because they take into account the seasonality of consumer-based retail.

Betting Against Retail Stores

In November 2017, CNBC reported on a new exchange-traded fund called the Decline of the Retail Store ETF (EMTY), created by ProShare Advisors, whose express aims are capitalizing on declining stock of retail stores. The value of this ETF is designed to rise when the stocks within its tracked index fall. The fund accomplishes this by short selling. Specifically, the ETF takes the short position against the Solactive-ProShares Bricks and Mortar Retail Store Index. The brick-and-mortar stores included on the index the ETF bets against include Rite Aid, Best Buy, Macy’s, and Bed Bath, and Beyond.

The Decline of the Retail Store ETF arises in the context of the recent decade’s continuing decline of retail stores up against online behemoths, namely Amazon.com. CNBC’s reportage also highlights the "Death By Amazon" index created by Bespoke Investment Group, which tracks over 60 brick-and-mortar retailers negatively impacted by online retailers.

Short-selling retail stocks has become so popular in recent years that alarmed investors in certain retailers’ stocks have called for action. CNBC reported in December 2017 that a Swiss investment manager for the Elarof Trust, which holds 2 million shares in department store Sears, has recommended Sears suspend short-selling in their stock and go private. Retail short-sellers were a bit shaken, however, by the performance of certain brick-and-mortar retailers surging in late 2017, bolstered by consumer holiday spending. Reports in both Forbes and the Wall Street Journal noted that the SPDR S&P Retail ETF rose nearly 15 percent in the last half of 2017, and department-store stocks like Macy’s, Dillards and Nordstrom rose above expected year-end levels.

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