From Macy’s /zigman2/quotes/201854387/composite M +0.49% to the Gap /zigman2/quotes/201996496/delayed DE:GAP -1.89% , from Nordstrom /zigman2/quotes/203902116/composite JWN +2.61% to Foot Locker /zigman2/quotes/204092533/composite FL +1.17% , the retailpocalypse rolls on.
That means an exchange-traded fund that tracks the broad retail landscape, the SPDR S&P retail ETF /zigman2/quotes/206947004/composite XRT +1.58% , is basically flat for the year to date, a period in which the Dow /zigman2/quotes/210598065/realtime DJIA +0.62% and S&P /zigman2/quotes/210599714/realtime SPX +0.36% indexes are both up double digits.
And it probably means that ETFs designed to profit from the ongoing wave of brick-and-mortar shutdowns will outperform, right?
Perhaps. But an analysis out Thursday from Ned Davis Research notes that there’s a lot of nuance surrounding the current moment in retail, and ETF investors may want to tread lightly.
Leading up to the past two recessions, online shopping surged, the analysts noted. Indeed, as measured by the performance of two online retail ETFs, a similar pattern is now emerging.
ProShares’ Decline of the Retail Store ETF /zigman2/quotes/200757065/composite EMTY -1.70% has gained about 12% so far this year, while the Long Online/Short Stores /zigman2/quotes/207285925/composite CLIX -0.08% fund from the same company is up about 26%.
“Investors are clearly rewarding retailers that generate the majority of their sales online,” the Ned Davis team noted. If we are facing the end of the expansion, online retailer stocks may actually be more vulnerable, given their richer valuations relative to brick-and-mortars, they added. It’s also unclear whether we are facing a cyclical downturn or just some temporary turbulence.
“However, online retailers should withstand the next recession much better than traditional retailers given lower overhead expenses,” the analysts said. “This makes CLIX an attractive vehicle to play the long-term shift in retail sales trends.”
Ned Davis’ analysts also note that the consumer discretionary sector starts to underperform the market as early as 12 months before the onset of a recession, which is why they’ve been watching the space closely.
“We like to say the consumer leads us into recession and the consumer leads us out of recession,” they said. “So even if we downgraded
Discretionary on pre-recessionary fears, we would likely upgrade soon after discovering we are in fact in a recession.”