NEW YORK (
) -- While retail earnings have diverged this week, the
SPDR S&P Retail ETF
continued to perform well because of its balanced approach.
The relatively affordable ETF, with a 0.35% gross expense ratio, has holdings in 64 companies in the retail sector. The fund does not allocate a heavily weighted portion of its net assets to any individual company. For example, the largest holding,
, the home shopping retailer, accounts for only 2.3% of the fund.
A positive or negative report from a company is not capable of significantly moving the entire fund. That's good because there have been some mixed reports this week.
For instance, the shares of two mid-priced fashionable clothing retailers diverged in Wednesday trading after they sent investors mixed messages this week. The shares of
( JCG) fell 4.3% after the markets reacted negatively to its earnings and a Citi analyst's downgrade of the company.
On the other hand, the markets were more optimistic about
American Eagle Outfitters'
report and sent its shares up 6.1%.
Meanwhile, shares of XRT reached a new 52-week high yesterday despite some misses here and there. Its balanced approach has insulated investors from the few misses such as J. Crew while reflecting the overall recovery in retail.
In addition to JCG and AEO, several other XRT holdings reported this week including
( JAS) and
On Tuesday, shares of Kroger fell after it reported a 27% drop in profit in the fourth quarter.
Yesterday, PLCE reported its fourth-quarter profits dropped 12%, while MW also reported a loss for the quarter. However, the shares of both companies advanced on the day.
After the bell yesterday, JAS, a craft and textiles retailer, reported a strong fourth quarter and full year, while GYMB, a competitor of PLCE in the children's retail industry, beat analysts' fourth-quarter profit expectations and supplied strong guidance for the first quarter. Shares of JAS were down slightly this morning, while shares of GYMB were up more than 10%.
Two other holdings in XRT have yet to deliver their results.
reports after today's close and
In total, the retailers in XRT that have already reported this week account for 11.7% of the fund. If all of these companies had reported positively or negatively, it could have made a significant impact on the fund, but the reports were mixed, allowing XRT to continue its bullish trend.
Due to the mixed reports, however, XRT was up only 0.9% through Wednesday, while the S&P 500 increased by 0.6%. Shares of XRT were losing ground this morning, along with the broader market.
If investors are bullish on retail, they can confidently go with XRT. Its balance approach means that no single company will lead the ETF by the nose and since the start of 2010, XRT has increased by about 11% while the S&P 500 is up only 3%.
It has also outperformed its two main retail ETF rivals:
, up 4%, and
PowerShares Dynamic Retail
, up 9%.
Until the recovery strengthens and the earnings reports turn more generally positive, XRT remains the best way to play retail.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion did not own any of the equities mentioned.
Don Dion is president and founder of
, 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.