Retail's Resilience

by Jay Pestrichelli on May 31st, 2012

Although the retail isn’t considered a major sector by itself, it certainly is worth discussing in advance of the May jobs number coming out tomorrow. Compare the SPDR S&P Retail ETF, XRT to any ETF and you’ll be hard pressed to find one that has outperformed it this year.
This ETF has a mix of Consumer Cyclicals and Consumer Defensive and has seemed to capture some big winners of the year like Expedia, TripAdvisor, and Priceline. Below are the top 10 holding. With a mix of large, medium, and small caps this ETF has a low dividend of only 1.13%.
The past few months of job growth in this sub-sector has supported this kind of resilience, but remember those are backwards looking data points and the market, as reflected in the ETF, is forward looking. By that logic, we don’t expect this sector to disappoint in the data tomorrow, but forward looking is an entirely different story.

Consider this ETF as a holding when looking for some specific exposure to a growing economy. However, hedging costs are high so married puts or collars are going to cut into gains. Instead we’d consider a vertical spread on this looking out to September to build in protection.

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