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Is Retail in Trouble This Holiday Season?

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Will the Covid-19 pandemic put the squeeze on buyers this holiday season? That’s what a lot of retail forecasters are asking these days as the holidays are rapidly approaching. This trend could impact certain exchange-traded funds (ETFs) in the process.

Industry experts don’t want to project a solemn attitude towards retail, as evidenced by one of the sector’s leading trade organizations. According to a Forbes article, “By this time each year, the National Retail Federation (NRF) would be out with its holiday retail forecast. But 2020 has been a year like no other, so NRF begged off making their prediction until November. Comparing the forecasting process to completing a jigsaw puzzle with some of the pieces missing, NRF’s chief economist Jack Kleinhenz said in a statement.”

“We are waiting for new data and are still assembling puzzle pieces for the 2020 holiday season,” said Kleinhenz. “The test is whether consumer spending will be sustained amid wildcard puzzle pieces including policy surprises, the election and a resurgent virus.”

So how can ETF investors play retail? One way is to look where the shoppers will be heading.

“Fear of contracting the Covid-19 virus will suppress in-store shopping among a majority (51%) of shoppers,” the article noted. “Without them venturing into stores, which stimulates impulse purchases, their shopping will shift to more tactical and practical online shopping. Nearly two-thirds of their total expected $1,387 spend or $892 will be online, compared with only 28% ($390) in-store.”

That said, investors can look to the ProShares Online Retail ETF (NYSEArca: ONLN). The fund seeks investment results that track the performance of the ProShares Online Retail Index (the index), which measures the performance of publicly traded companies that principally sell online or through other non-store sales channels, such as through mobile or app purchases, rather than through “brick and mortar” store locations.

ONLN YTD Performance

ONLN YTD Performance

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Going Against the Grain

That said, it’s not all doom and gloom for retailers, which could present a buy-the-dip opportunity for traders willing to bet that a retail crunch may not occur. Short-term traders can look at the Direxion Daily Retail Bull 3X ETF (NYSEArca: RETL). RETL seeks daily investment results of 300% of the daily performance of the S&P Retail Select Industry Index. RETL invests in securities found within the index, which is a modified equal-weighted index that measures the performance of the stocks comprising the S&P Total Market Index.

The biggest retail ETFs based on total assets have struggled during the height of the pandemic sell-offs in March–SPDR S&P Retail ETF (XRT)Amplify Online Retail ETF (IBUY), and VanEck Vectors Retail ETF (RTH). However, the tide could be turning and how well retailers respond to a post-COVID environment will give an indication of how well these funds will perform.

For more market trends, visit ETF Trends.

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