Corporations continue to post phenomenal earnings. And yet, macro-economic reports¬†continue to register weaker-than-expected numbers.
It’s a¬†battle for the soul of the investing public. Do you believe¬†that strength¬†at classic cyclical organizations (e.g., Intel, Alcoa, etc.) will lead to improvement in hiring, consumption and overall GDP? This would likely be bullish for stock assets. Or do you anticipate that a core unwillingness to lend, hire or consume will be the eventual undoing of corporate profits? This would likely be bearish for equity investing.
In the first 13 1/2 months of the cyclical upturn (3/9/2009-4/23/2010), several Retail ETFs placed near the top of the leaderboard. Yet these same specialized funds fell at an alarming rate during the current corrective phase.
|Retail ETFs During The 09-10 Bull And During The Current Correction|
|¬†||¬†||¬†||¬†||Gain (3/9/10-4/23/10)||¬†||Drawdown (4/24/10-Present)|
|SPDR S&P Retail (XRT)||¬†||150.6%||¬†||-16.8%|
|Retail HOLDRs (RTH)||¬†||78.3%||¬†||-16.3%|
|Powershares Dynamic Retail (PMR)||91.4%||¬†||-17.7%|
Not surprisingly, a leading leveraged ETF provider took notice of the huge swings in “Retail.” The Direxion Funds Family introduced Bull and Bear leveraged investments that¬†seek 200% of the daily¬†performance, or 200% of the inverse, of¬†the Russell 1000 RGS Retail Index. In¬†other words, you can go “double-the-daily” long or “double-the-daily” short on a sub-segment (e.g., retailers) of consumer¬†discretionary spending.
Judging by the massive redemption of SPDR Retail (XRT) dollars, one should expect particular interest in the new Direxion Daily Retail Bear 2X (RETS). Unless private hiring exceeds expectations throughout the course of 2010’s 2nd half, it stands to reason that retailers may come under some pressure. The ability to bet against them, rather than all consumer companies, may also add to¬†the volatility of the sub-segment.
Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above.¬†The company receives advertising compensation¬†from Invesco PowerShares Capital Management, LLC and Geary Advisors, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc.¬†web site.