An ETF for the Retail Divide

The SPDR S&P Retail ETF offers investors exposure to a broad spectrum of companies in the retail sector.
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NEW YORK (TheStreet) -- While the recent onslaught of negative economic data hitting the tape has put bearishness in vogue, it is hard to ignore other factors which paint a more optimistic picture.

For instance, in light of earnings season and Monday's personal spending report, the consumer remains an intriguing area of the market to watch.

The resilience of the consumer has been one of the bigger stories to surface from the most recent earnings season. As evidenced by strong numbers from players including

Wal-Mart

(WMT) - Get Report

,

Home Depot

(HD) - Get Report

and

Chico's

(CHS) - Get Report

, shoppers are still drawn to spend, whether it is at the mall or online.

Strength from this session of earnings reports will provide my retail ETF pick,

SPDR S&P Retail ETF

(XRT) - Get Report

, with an additional boost heading into the near future.

Interestingly, despite the generally positive tone from retail, not all facets of this industry are sources of strength. Rather, the brightest areas within the retail industry remain at the upper- and lower-ends of the spectrum.

Meanwhile, the teen retailers, which fall between these two extremes, have largely been a mixed bag; some have followed

Hot Topic

(HOTT)

and

JCrew

(JCG)

and missed Wall Street expectations or cut out outlooks while others such as

Urban Outfitters

(URBN) - Get Report

have blown away analyst predictions.

Due to the interesting split that has developed across the retail landscape, attempting to pick out individual winners from the group will prove to be a difficult task looking to the weeks and months ahead.

Therefore, rather than fishing around, attempting to separate out the outperformers from the laggards, a more effective way of navigating the consumer's mind and pocketbook would be through the use of a broad, equity backed ETF. In this case, the XRT remains my top choice for playing this industry.

XRT's index runs the retail gamut, playing all types of consumers. Comprising the ETF are discount retailers such as Wal-Mart, upper end luxury retailers such as

Tiffany

(TIF) - Get Report

, and everything in between.

Within the realm of retail ETFs, XRT is not alone, however. Rather, one major challenger to this fund is the

Retail HOLDRs

(RTH) - Get Report

.

Like XRT, this fund attempts to track the spending habits of consumers by looking at a number of top names in the retail industry. While many of the names are similar across XRT and RTH, the HOLDR fund's exposure to individual positions is noticeably different.

XRT tracks a basket of 65 different positions. With its top ten holdings representing less than 20% of the fund's total assets, this fund has the benefit of tracking a widely distributed portfolio.

RTH, on the other hand, is noticeably more heavily weighted towards its top holdings. Boasting an index comprised of 18 individual holdings, this fund dedicates 20% of its portfolio to Wal-Mart alone.

An additional 13% of the RTH is dedicated to

Home Depot

(HD) - Get Report

.

Year to date, XRT has managed to gain over 4%, handedly beating out RTH, which has dipped 4%.

While I am confident in the prospects for the broad retail industry going forward, I am also aware that the going may get rocky. Therefore, I feel that spreading my assets adequately across a broad spectrum of companies is the most effective way to play the industry going forward. In this case, XRT is just the tool for the job.

-- Written by Don Dion in Williamstown, Mass.

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At the time of publication, Dion Money Management was not long any of the equities mentioned.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.