When Betting on Retail, These ETFs Offer Two Very Different Options

retail-sale-tagInvestors seeking exposure to the U.S. retail sector have two main ETF options, and the performance and makeup of these two funds couldn’t be more different.

First, let’s examine the SPDR S&P Retail ETF (NYSE:XRT), the clear leader in the space. At last count, XRT had $526 million in assets under management (AUM), and traded around 4.8 million shares per day. Here are its top ten holdings:

Symbol Company % of Total
GRPN Groupon Inc 1.82%
GPS Gap Inc/The 1.49%
DKS Dick’s Sporting Goods Inc 1.48%
FRAN Francesca’s Holdings Corp 1.47%
URBN Urban Outfitters Inc 1.47%
FINL Finish Line Inc/The 1.45%
JWN Nordstrom Inc 1.41%
OUTR Outerwall Inc 1.38%
TLRD Tailored Brands Inc. 1.35%
ASNA Ascena Retail Group Inc 1.34%

In total, XRT holds 98 different stocks. As you can see, its concentration is more on the traditional brick-and-mortar retail sector, with the exception of Groupon. That’s because the fund tracks the S&P Retail Select Industry Index.

In terms of performance, XRT has risen about 6% year-to-date, just a bit below what the S&P 500 has returned in the period:

XRT-2016-08-24

Now let’s compare XRT with the VanEck Vectors Retail ETF (NYSE:RTH). RTH is much smaller, with just $135 million in assets, and trades much more thinly, with an average daily volume of only 40,000 shares.

Its top ten holdings are much different, as well, since the RTH tracks a completely different index, the Market Vectors U.S. Listed Retail 25:

Symbol Company % of Total
HD Home Depot Inc/The 7.52%
WMT Wal-Mart Stores Inc 6.36%
CVS CVS Health Corp 5.24%
COST Costco Wholesale Corp 5.23%
WBA Walgreens Boots Alliance Inc 4.97%
LOW Lowe’s Cos Inc 4.68%
MCK McKesson Corp 4.43%
TJX TJX Cos Inc/The 4.42%
TGT Target Corp 4.41%
JD JD.com Inc 4.37%

RTH holds a total of 26 positions, and as a result of its different makeup, RTH has risen a less-inspiring 4.3% this year. However, over a 12 month time frame, RTH has surged 12.5% versus just 3.9% for the XRT.

RTH-2016-08-24

Both XRT and RTH offer the exact same expense ratio of 0.35%, but the similarities seem to end there. While XRT is much more popular from an asset-gathering and volume standpoint, RTH deserves a close look due to its better 1-year performance and seemingly superior future-proof makeup.

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