In the wake of recent earnings reports from retail giants like Wal-Mart (WMT), PowerShares Momentum Tracker peeled back the layers of the retail sector in the current issue of their ETF publication.
PowerShares Momentum Tracker profiled the PowerShares Dynamic Retail Portfolio as part of a weekly feature in which the methodology of an ETF is examined, as well as its relevance to the economy as a whole. While much of the retail news remains gloomy, PMR’s year-to-date returns are in positive territory—up 1.21% year to date as of August 27 in the midst of a difficult economy.
“Despite an extended economic slowdown and poor consumer spending numbers, PowerShares Dynamic Retail Portfolio (PMR) gained momentum over the summer,” said publisher Don Dion, “while some analysts believe that the worst is yet to come for retail, an increasing number of investors believe that some retailers are oversold and that these names are now at bargain prices.”
PMR is included among Dion’s “fund universe”—a group of ETFs tracked and ranked each week in PowerShares Momentum Tracker. PMR remained stagnant in Dion’s Sector Momentum Rankings for much of June and July but has made significant gains in recent weeks, jumping in our rankings from No. 32 on July 30 to the No. 14 position on August 27. “PMR’s returns have made significant gains during the last month,” Dion noted, “due to a combination of portfolio composition, sector news and timing that boosted the fund 5.59% for the month ending August 27.”
The retail sector has suffered some of the hardest blows from an almost universally difficult economy. The latest retail numbers, released August 29, show personal income lagging 0.07% while real disposable income fell 1.7%. Although the latest statistics may have a very immediate impact on the price of some retailers, many analysts are predicting that price cuts could affect some retailers in a more resounding fashion. Long-term effects of deep discounting could include damage to some brand names, while consumers who become accustomed to current discounts might resist a “return to normal” price shift in a better economy.
PMR tracks PowerShares’ Retail Intellidex. Candidates of the index are evaluated on a range of criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. PMR, then, comprises those securities that show the greatest capital appreciation potential as measured by the index. As of August 2, the resulting index includes 30 equities that are dispersed throughout the market-cap spectrum—with an emphasis on large-cap growth and value.
The harsh reality that faces the retail sector—consumers with fewer dollars to spend—may be a boon for PMR’s investors. With fewer dollars to spend, many consumers have inevitably turned to discount stores in an effort to cut costs. PMR’s top 10 components include TJX and Wal-Mart, a combination that could continue to prosper with a shift in consumer spending to discount venues.
“While retail may remain a sore spot for investors in the coming months,” Dion said, “PMR could present a good opportunity for those who believe that the retail sector will continue to shift as consumers reallocate their spending.” Whether investors track PMR from the sidelines at PowerShares Momentum Tracker or become active investors, PMR’s surge in momentum could be an interesting—and perhaps profitable—trend to watch.
PowerShares Momentum Tracker is a member of Fidelity Independent Adviser’s family of financial publications. With more than 70,000 subscribers in the United States and 29 other countries, Fidelity Independent Adviser publishes four monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.
Publisher Don Dion (dionmm.com) is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Massachusetts, Dion Money Management manages more than $720 million in assets for clients in 49 states and 11 countries. A licensed attorney in Massachusetts and Maine, Mr. Dion has more than 25 years’ experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.