Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect retailers to do better in the near future, as the global economic recovery gains steam, the SPDR S&P Retail ETF (NYSE: XRT ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in a lot of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a relatively low 0.35%.
This ETF has performed well, outperforming the world stock market handily over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
What's in it?
Plenty of retail companies had strong performances over the past year. Vitamin and wellness specialist GNC Holdings (NYSE: GNC ) , for example, more than doubled, having benefited from higher profit margins on its self-branded health supplements. The company has been growing briskly, trouncing Wall Street expectations, and upping its own projections. In very different fashion than Facebook, it has been a rather successful recent IPO. Bears worry about its brick-and-mortar stores' ability to compete with online rivals.
Dollar Tree (Nasdaq: DLTR ) gained about 62%, buoyed in recent years by tough economic times leading many consumers to focus even more on discount shopping. As the economy improves, though, some of these folks will start doing more shopping at more upscale venues. Bears see an upswing in luxury-brand sales as a troubling trend, and some find the stock overvalued.
Tractor Supply (Nasdaq: TSCO ) , up 61%, has been a longtime winner, with its stock gaining more than 30% annually, on average, over the past decade. Shares fell back a bit recently, though, on worries that sales may be slowing. It's also viewed as overvalued by some, but its 0.8% dividend can offset that worry a tiny bit. And the dividend seems to be growing briskly; it was hiked by a full 67% recently, and with a low payout ratio has plenty of room to grow. The company plans to grow its store base by about 8% annually over the coming decade and is adding more consumable items to its product line to boost repeat visits.
Then there's Amazon.com (Nasdaq: AMZN ) , up about 10%. One recent threat to the company is a movement to collect sales tax from online retailers -- though some think that it will hurt smaller vendors more, and could thus benefit Amazon. A trend helping Amazon is its growing Amazon Prime service, with membership expanding by about 20% annually, and those customers, freed from shipping charges and getting speedy deliveries, spending 130% more than non-members.
The big picture
Demand for retailers isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
Retailing is a compelling industry for us small investors to consider, partly because it's relatively easy to understand. And clearly, from the results above, there's good money to be made in it, as well. To get our analysts' take on two very promising retailing stocks, check out our special free report, "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail."