The Xchange Blog

Will Retail Rise as the Leaves Fall?

With a couple of exceptions, 2017 has been a pretty rough year for retail investors. Wall Street continues to hit the sector amid the sustained dominance of Amazon. News of Amazon’s acquisition of Whole Foods and its planned expansion into brick-and-mortar sales hasn’t done much to quell that sentiment.

However, the prevailing negative sentiment doesn’t necessarily mean there are not opportunities in the sector. If history is any indication, the fourth quarter could signal a change in price trends within the industry overall, helped by a few names in particular.

Q4 is traditionally the strongest quarter across all of retail thanks to the holiday shopping season, but Wall Street generally prices in those gains ahead of time. That being said, take a look at a three-year chart of the Direxion Daily Retail Bull 3X Leveraged ETF (RETL), which seeks to deliver three times the daily return of the S&P Retail Select Industry Index (the “Index”).


Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized.

 

RETL is also well-positioned because of its holdings. With the exception of Sears, most of the fund’s top holdings are in specialty retail (56 percent of the Index, to be exact) which has proven more resilient against Amazon than big-box stores with massive amounts of inventory. Guess and Wayfair in particular are standouts within the Index, each showing consistent growth year-over-year between 2016 and 2017. That performance has pushed Guess up 35 percent year-to-date and Wayfair up over 135 percent as of mid-September.

In 2016, the S&P Retail Select Industry Index ran up around 17 percent from November to December. That followed a 5 percent decline in the in Index from September through October. This year, the Index is up around 4 percent since the beginning of September.

With Q3 earnings season around the corner, we’re about to get a slew of new data on companies’ confidence in their Q4 performance. Even if companies report poor earnings numbers, sometimes all that is needed for a turn in sentiment is to beat the estimate.

At the moment Wall Street has exceedingly low expectations for most retail stocks. It’s not a high bar to clear, but clearing it nonetheless could drive retail stocks higher in the coming weeks and months.

 

 


 

Performance (as of 9/30/2017)

Ticker Fund   1-Mo % 3-Mo % YTD 1-Yr % 3-Yr % 5-Yr % S/I % Inception Expense Ratio* (Gross/Net) %
RETL Direxion Daily Retail Bull 3X Shares NAV 21.99 5.71 -20.31 -29.78 17.33 27.56 37.76 7/13/2010 1.14/1.05
Market Close 22.48 5.18 -19.91 -29.51 17.1 27.59 37.77

* The Net Expense Ratio includes management fees, other operating expenses and Acquired Fund Fees and Expenses. If Acquired Fund Fees and Expenses were excluded, the Net Expense Ratio would be 0.95%. The Fund’s Adviser, Rafferty Asset Management, LLC (“Rafferty”) has entered into an Operating Expense Limitation Agreement with the Fund, under which Rafferty has contractually agreed to cap all or a portion of its management fee and/or reimburse the Fund for Other Expenses through September 1, 2018, to the extent that the Fund’s Total Annual Fund Operating Expenses exceed 0.95% of the Fund’s daily net assets other than the following: taxes, swap financing and related costs, acquired fund fees and expenses, dividends or interest on short positions, other interest expenses, brokerage commissions and extraordinary expenses. If these expenses were included, the expense ratio would be higher.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. For the most recent month-end performance please visit the funds website at direxioninvestments.com.

Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. For additional information, see the fund’s prospectus.

An investor should consider the investment objectives, risks, charges, and expenses of the ETFs carefully before investing. The prospectus and summary prospectus contain this and other information about the ETFs. To obtain a prospectus or summary prospectus please visit www.direxion.com/regulatory-documents. The prospectus and summary prospectus should be read carefully before investing.

There is no guarantee that the ETFs will achieve their investment objectives. Direxion’s Leveraged and Inverse ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investments.   Investing in the ETFs may be more volatile than investing in broadly diversified funds. The use of leverage by an ETF means the ETFs are riskier than alternatives which do not use leverage.

Direxion Shares Risks – An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with the Fund concentrating its investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. The Fund does not attempt to, and should not be expected to, provide returns which are three times the return of its underlying index for periods other than a single day. Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Daily Index Correlation/Tracking Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs) Risk and risks specific to investment in securities in the Retail Sector. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

S&P Retail Select Industry Index (SPSIRETR) – A modified equal-weighted index that is designed to measure performance of the stocks comprising the S&P Total Market Index that are classified in the Global Industry Classification Standard (GICS) retail sub-industry. One cannot directly invest in an index.

Distributor: Foreside Funds Services, LLC