Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect retailers to eventually thrive again, once the global economy improves, the Retail HOLDRS (NYS: RTH) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use it to invest in lots of them simultaneously.
Note that the Retail HOLDRS is a trust and technically not an ETF, but it's very similar in many regards. In addition, it looks like it will be converted to an ETF in the near future.
This investment has performed reasonably well, solidly beating the S&P 500 (INDEX: ^GSPC) over the past three years and edging out the index in the past decade. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 0%, this fund doesn't adjust its holdings at all, and certainly doesn't frantically and frequently rejigger its holdings, as many funds do. (Once it becomes an ETF, it's likely to have a higher turnover rate, but very likely still a low one.)
What's in it?
Several of this trust's components made strong contributions to its performance over the past year. Amazon.com gained 51%, defying those who have called it overvalued and boosting expectations via its successful Kindle and new Fire tablet. CVS Caremark (NYS: CVS) gained 11%, but may struggle a little more as its pharmacy division competes with the merged combination of Express Scripts (NAS: ESRX) and Medco (NYS: MHS) . Fellow holding Walgreen (NYS: WAG) fell 3%, but has been rewarding shareholders by boosting its dividend and buying back shares.
Other companies didn't add as much to the trust's returns last year, but could have an effect in the years to come. Top holding Wal-Mart, representing 18% of the fund's assets, gained just 5% over the past year. Meanwhile, it has been posting double-digit gains in earnings over the past year and raking in hundreds of billions of dollars in sales. Smallest holding SUPERVALU (NYS: SVU) shed about 34% in value, but it has been turning itself around, partly by beefing up its store brands.
The big picture
Demand for retail services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
At the time thisarticle was published Longtime Fool contributor Selena Maranjian owns shares of Wal-Mart, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Wal-Mart and SUPERVALU. Motley Fool newsletter services have recommended buying shares of MedcoHealth Solutions, Wal-Mart, and Amazon.com, as well as buying calls in SUPERVALU and creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.