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Buying Into Retail ETFs? Proceed With Caution

Simon Colvin, an analyst at market-data firm Markit, has identified that short-seller interest in the retail space is currently much larger than that of the S&P 500 as a whole. In other words, there's plenty of money betting on price declines in consumer stock "faves."

I wouldn't describe the retail stock investing environment as sickly, especially with individual names like JC Penney (JCP) and Best Buy (BBY) rocketing 1.6% as I type. That's double the broader market. Nevertheless, if "retail" were going to outperform in the next few months, rather than underperform, one would certainly anticipate outperformance during the Black Friday trading session.

Notice the relative flatness... even some relative weakness... in the table below. If Retail ETFs were going to buck the historical trends since 2000, why aren't the Black Friday percentage gains decidedly more impressive than the S&P 500 at large?

  • SPDR S&P Retail, 1.5%
  • SPDR S&P Consumer Discretionary, 1.3%
  • PowerShares Dynamic Leisure and Entertainment, 0.6%
  • PowerShares Dynamic Retail Portfolio, 1.0%
  • Market Vector Retail, 1.1%

By contrast, SPDR S&P 500 Trust was up 1.3%.

By no means am I endeavoring to slam Retail ETFs here. In fact, I happen to think the equal weighting between consumer defensive and consumer discretionary in RTH is a reasonably low-risk way to gain access to steady increases in consumption.

If you're not in the market for a complementary portfolio asset, however, you may be better served by adding to your core. Funds like iShares S&P 100 (OEF) as well as iShares Russell 1000 (IWB) have recovered their respective trendlines. And if historical trends through the Christmas season hold, they will provide better returns with greater diversification than the above-mentioned competition.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

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