2023 Holiday Outlook: Retail ETFs to Keep on Your Watchlist

What the experts are saying

Overall, the holiday outlook for 2023 is looking positive according to various experts. Here are the key highlights from major organizations:

1. National Retail Federation: Forecasts holiday spending to reach record levels between November and December, growing 3-4% over 2022 to $957.3 billion - $966.6 billion. This growth, though slower than during the pandemic years, aligns with the average annual increase of 3.6% from 2010 to 2019. Online and non-store sales are expected to rise 7-9%, reaching $273.7 billion - $278.8 billion, up from $255.8 billion last year.
2. Boston Consulting Group (BCG): Amazon and mass market retailers are anticipated to capture 50% of consumer spending. Different generations have distinct shopping preferences: Gen Z and Millennials are leaning towards direct brand purchases, speciality retail, and value formats; Boomers favour department stores. Gen Z and Millennials are expected to spend more on apparel, pets, beauty, intimates, and home goods. Gen X, although spending less than younger generations, is expected to spend more on luxury and health & wellness.
3. Deloitte: Predicts a 3.5% to 4.6% increase in 2023 holiday sales compared to 2022, with retail sales growing 7.6% to $1.49 trillion between November 2022 and January 2023. Deloitte also forecasts a significant 10.3% to 12.8% increase in 2023 holiday e-commerce sales.

ETFs investors can use

The ETF selection here to bet on holiday shopping trends can differ greatly on both the segment of exposure (e.g. luxury) and vertical (e.g. e-commerce) you're looking for exposure to.

For a broad retail play that drills down more than the average consumer discretionary ETF, investors can opt for either the SPDR S&P Retail ETF (XRT) or the VanEck Retail ETF (RTH).

Both ETFs provide exposure to a number of U.S. listed apparel retail, automotive retail, electronic retail, department stores, drug retail, food retailers, broadline retail, and merchandise retailers.

There are some key differences to note between XRT and RTH though. The former uses an equally weighted index, which provides a much higher exposure to mid and small-cap retailers. In contrast, RTH focuses on the 25 largest and most liquid retailers. In terms of fees, both charge the same 0.35% expense ratio.

Investors wishing to focus solely on e-commerce sales can also do so with specialized ETFs like the ProShares Online Retail ETF (ONLN) and the Amplify Online Retail ETF (IBUY).

The former is modified equal-weighted, whereas the latter is modified market cap weighted. Expect higher fees too, with a 0.65% expense ratio for IBUY and 0.58% for ONLN.

Finally, investors looking to target the high-end of the retail ecosystem can speculate on luxury goods and services sales too. The ETFs to watch here are the relatively new Tema Luxury ETF (LUX) and the KraneShares Global Luxury Index ETF (KLXY).

Both ETFs have a global focus, with a heavier European bias compared to the previous broad retail and e-commerce ETFs due to the presence of numerous luxury brands there. However, they differ with respect to strategy. While KLXY is index-based, LUX is actively managed.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.