Retail ETFs to Play in a Double-Dip

Bearish investors should look to these ETFs to add some retail stocks to their portfolio.
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Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Jeanine Poggi spoke with NBR's Tom Hudson (watch video and read transcript) about defensive retail ETF plays.

NEW YORK (TheStreet) -- Retail stocks are never easy to play, with so much of a company's performance based on hard-to-predict and ever-changing trends. And with consumer confidence stubbornly low and retailers across the board once again finding themselves needing to discount, trading stocks within the sector has become increasingly more difficult.

The second quarter didn't provide much to look forward to, with few retailers reporting heroic numbers -- and most, not surprisingly, issuing cautious outlooks.

Thus, for those who believe the U.S. economy is poised for a double-dip, cherry picking retail stocks should be avoided. For those who are seeking to diversify their portfolio with some retail stocks, a less aggressive, defensive ETF like

Retail HOLDRs

(RTH) - Get Report

is a safer bet.

RTH is heavily weighted in non-discretionary retailers like

Wal-Mart Stores

(WMT) - Get Report

, which comprises slightly more than 20% of the holding, and

Target

(TGT) - Get Report

, at 9.4% of the portfolio.

Retail HOLDRs also has a small stake in some second-quarter superstars like

Macy's

(M) - Get Report

and

Limited Brands

(LTD)

.

RTH is down 7% for the year-to-date perdiod, while the S&P Retail Index is down 3.5% for the same time.

Other safer ETFs include

Consumer Staples Select

(XLP) - Get Report

and

Vanguard Consumer Staples

(VDC) - Get Report

. However, these are not pure plays on the retail sector, consisting mostly of consumer product companies like

Coca-Cola

(KO) - Get Report

,

Colgate-Palmolive

(CL) - Get Report

and

Procter & Gamble

(PG) - Get Report

.

XLP only has 25% of its portfolio allocated to retailers, while retailers comprise a mere 20% of the holding at VDC.

Investors who are more bullish on the prospects of a consumer recovery and hope to catch it early can look to the

SPDR S&P Retail ETF

(XRT) - Get Report

. This is a pure-play on retail with broad exposure, with 65 holdings in diverse retailers, from

Tiffany's

(TIF) - Get Report

and

Nordstrom

(JWN) - Get Report

to

Amazon

(AMZN) - Get Report

and

Netflix

(NFLX) - Get Report

.

The upside of XRT is that it distributes its assets relatively evenly, with its top holding,

Priceline

(PCLN)

, comprising just 2.7% of its total assets.

XRT is up 1.2% for the year-to-date period.

Still, investors should only look to the XRT if they have "nerves of steel," says Morningstar analyst Robert Goldsborough. The XTR is a vote of confidence on the slow but steady recovery.

Goldsborough, for his part, suggests owning XRT further into a double dip, not when there is so much uncertainty out there.

--Written by Jeanine Poggi in New York.

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