The retail industry has transformed itself in recent years, punishing brick-and-mortar retailers in favor of those who have moved to an e-commerce model for the bulk of their sales. Many retail stocks have gotten hammered, and that has attracted value investors looking for inevitable bargains among the carnage.

For those looking to invest in the space, retail-specific exchange-traded funds (ETFs) offer some valuable diversification, as well as the ability to drill down on certain subsectors in the industry. There are only a handful of retail ETFs, but they have very different approaches toward investing in the space.

Retail ETF

Assets Under Management

Expense Ratio

Five-Year Average Annual Return

SPDR S&P Retail (NYSEMKT:XRT)

$440 million

0.35%

8.1%

Van Eck Vectors Retail (NYSEMKT:RTH)

$66 million

0.35%

16.8%

Amplify Online Retail (NASDAQ:IBUY)

$63 million

0.65%

N/A

Direxion Daily Retail Bull 3x (NYSEMKT:RETL)

$26 million

1.05%

31.5%

PowerShares Dynamic Retail (NYSEMKT:PMR)

$14 million

0.63%

8.6%

Data source: Fund providers. N/A-not available. Inception date for Amplify ETF was April 20, 2016.

Different approaches to retail investing

Investing in retail isn't the most popular play right now, as shown by the relatively low asset levels in the top funds for the sector. The tried and true offering in the space is the SPDR ETF, which takes a broad approach toward retail investing. The fund uses a modified equal-weighted index that aims to give investors more level exposure to individual names within the industry. That works well when the largest retail players are lagging behind smaller up-and-comers, but that hasn't entirely been the case lately.

The Direxion ETF uses the same benchmark index as the SPDR ETF, but it uses a leveraged approach to produce three times the daily movement of the underlying benchmark. Many investors get confused when they see that the Direxion ETF's average annual return isn't exactly equal to three times the return for the SPDR ETF. That stems from Direxion's daily focus.

Fluctuations up and down can create a drag on leveraged ETFs, while consistent movements in a straight-up direction can lead to even better performance. By taking greater risk, the Direxion ETF's total return over the past five years has been well in excess of triple the SPDR's performance.

The PowerShares ETF uses a proprietary index that looks at stock-price momentum, earnings momentum, management action, and overall business quality to come up with appropriate weightings for its holdings. That strategy hasn't led to a huge boost to performance, but the PowerShares ETF has managed to outperform its SPDR counterpart over the past five years.

Smiling shoppers holding multicolored bags.

Image source: Getty Images.

Online winners

Using a different approach is the Van Eck retail ETF. What stands out for Van Eck is the fact that it has a 20% allocation to Amazon.com, which has been a huge winner in recent years. Van Eck's willingness to concentrate its bets on a single stock has paid off with dramatic outperformance, although it also leaves investors exposed to the fortunes of that single stock going forward. Most of the other stocks among the fund's holdings are traditional retailers in the home-improvement, drugstore, grocery, and big-box department-store niches, but the fact that returns are double the SPDR's average performance shows how instrumental online retail has been.

For those who want pure-play focus on online retail, the new Amplify ETF has gained in popularity. Over the past year, the fund has produced a nearly 45% total return, but interestingly, you won't find the internet's largest retailer in the top-10 holdings of the fund. Instead, newer companies like car dealer Carvana, veterinary medicine specialist Petmed Express, and online furniture pioneer Wayfair make up its three biggest positions.

Which retail ETF is best for you?

Investors have different views on whether the future of retail is moving solely toward the e-commerce front, and the ETF that's most appropriate for you depends on your particular opinion. Because these funds have relatively high costs compared to broader ETFs, retail investors need to have strong convictions about the way they choose to play the sector. With a variety of riskier and more conservative offerings, these ETFs span the spectrum of where most investors will want to be with their retail investments.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Wayfair. The Motley Fool has a disclosure policy.