Retail has had a rough year.
One of the worst-performing groups in the stock market for 2019, retail stocks have had difficulty mitigating the effects of the ongoing U.S.-China trade war and consumers’ shifting shopping preferences, with names like Macy’s and Gap notching double-digit losses for the year.
The SPDR S&P Retail ETF, also known by its ticker, XRT, is up less than 10% for 2019 — coming in just above the modest 4% year-to-date gain for energy, the worst-performing sector in the S&P 500. The S&P itself is up by more than 25% this year.
Recent earnings reports from top brick-and-mortar retailers including Kohl’s and Home Depot have added to the pain. Discount retailer Dollar Tree followed suit Tuesday, slashing its fourth-quarter earnings forecast and blaming China tariffs for the move. Shares have fallen by over 15% since Tuesday.
Black Friday also remains a question mark for many physical retailers struggling to attract shoppers to their stores. With online platforms making it easy to compare prices, expectations for the nationwide shopping holiday are dimming as the spread of shopping options continues to widen.
But investors could still benefit from parts of the retail space via exchange-traded fund strategies, Dave Nadig, managing director of ETF.com, tells CNBC’s “ETF Edge.”
“It really just comes down to that online, brick-and-mortar split,” Nadig said Monday. “I like CLIX here, which is the ProShares Long/Short [ETF]. You get long the good names in the space, the Amazons of the world, and you go short all the names we just saw. It’s having a great year.”
CLIX, which counts e-commerce giants Amazon and Alibaba among its top holdings, has indeed had a strong year, with a nearly 15% gain to date. Other ETFs that capitalize on the online shopping boom include ProShares’ Online Retail ETF (ONLN), Amplify’s Online Retail ETF (IBUY), the Global X E-commerce ETF (EBIZ) and the Emerging Markets Internet & Ecommerce ETF (EMQQ).
“Stick to the global plays. That’s where you’re going to get that emerging market consumer story,” Nadig said, adding that he didn’t like the popular XRT ETF for its heavy brick-and-mortar tilt and its exposure to smaller-cap companies.
Tim Seymour, founder and chief investment officer of Seymour Asset Management, said LVMH’s $16.2 billion acquisition of Tiffany speaks to the strength of emerging markets.
“That’s an EM story. That’s an Asia story,” Seymour said in the same “ETF Edge” interview. “If you barbelled it, I think high-end discretionary is working right now and the lower end is also working. So, I like that acquisition and I think you could see more consolidation.”
At the same time, some domestically focused retail stocks are “priced for perfection,” said Seymour, who appears regularly on CNBC’s “Fast Money.”
“If you look at a Target and a Walmart, while they’ve been massive outperformers, at some point, valuation does matter,” he said. “And I think, in this environment, they’ve been priced to perfection, but I’ve been wrong there for months.”