When it comes to investments that have driven massive returns, many of them came from the retail sector. Innovative retail concepts and regional to international expansions have often delivered outsized returns.
Still, for every millionaire maker like Home Depot or Walmart, there is a Bed Bath & Beyond or a JCPenney that wipes out many investors. Thus, while investors should not forget individual stocks, some may prefer to invest in exchange-traded funds (ETFs) instead, to hedge against failed retailers.
Fortunately, investors have numerous choices in ETFs tied to consumer discretionary stocks. However, of all the choices prospective investors may have in this category, the VanEck Retail ETF (RTH +1.73%) may be best positioned to deliver. Here's why.
NASDAQ: RTH
Key Data Points
What is the VanEck Retail ETF?
The VanEck Retail ETF tracks the performance of the U.S.'s consumer discretionary sector.
Unlike some consumer ETFs, this is different from funds meant to replicate indexes. Instead of having hundreds of stocks, like competing funds such as the Vanguard Consumer Discretionary ETF, this fund only claims 26 holdings.
As with most funds, allocations are not even. It likely will not surprise many to know that Amazon is its largest holding. What may shock some investors is that it allocates around 21% of the fund to the e-commerce and cloud computing company. In comparison, the Vanguard S&P 500 ETF's largest holding, Microsoft, is only 7% of that fund.
Additionally, no other stock makes up more than 10% of the fund. The second-largest holding, Costco, is over 8% of the VanEck Retail ETF. Home Depot, Walmart, Lowe's, TJX, and McKesson are also among the fund's major holdings.
How its performance compares to competitors
The VanEck Retail ETF is not the only fund of its kind, but few can argue with its results. Over the last five years, it not only outperformed its competitors, but also earned higher returns than the SPDR S&P 500 ETF, a frequently cited benchmark for market performance.
Admittedly, the fund's higher expense ratio of 0.35% annually might compare poorly to some funds that charge 0.10% or less.
Nonetheless, according to Morningstar, that is just under the industry average of 0.37%. Moreover, over five years, its returns were over 20 percentage points higher than those of the Fidelity MSCI Consumer Discretionary ETF and almost 8 percentage points higher than the SPDR S&P 500 index. Such outperformance indicates that the VanEck Retail ETF justifies the higher expense ratio.
RTH Total Return Level data by YCharts
Consider the VanEck Retail ETF
Ultimately, the VanEck Retail ETF is an excellent choice for retail stock investors. The ETF addresses the concerns of retail investors who are afraid they may pick the next Bed Bath & Beyond rather than the Home Depot of the future.
Additionally, its fund managers have chosen a basket of stocks that outperformed the S&P 500 over a five-year period, making it appealing to investors who may have struggled to beat that benchmark.
While it may charge a higher expense ratio, its managers have shown this ETF can outperform the market over time, making the extra cost worthwhile. As long as this overperformance continues, more passive investors might want to look at the VanEck Retail ETF instead of comparable funds or individual retail stocks.
