These funds spread investments across both high-street and online retailers, offering exposure to the sector’s long-term growth. / Credit: Andrzej Rostek via Shutterstock

Investing in retail-focused funds offers a strategic approach to capitalise on consumer spending trends and the evolving retail landscape.

These funds provide exposure to companies within the retail sector, encompassing both traditional brick-and-mortar stores and the expanding e-commerce platforms.

Go deeper with GlobalData

Data Insights

The gold standard of business intelligence.

Find out more

This article delves into the types of retail investment funds available, their benefits, and considerations for investors.

Understanding retail investment funds

Retail investment funds are pooled investment vehicles that allow individuals to invest in a diversified portfolio of retail sector companies. These funds can be broadly categorised into two main types: Exchange-Traded Funds (ETFs) and Mutual Funds.

Exchange-Traded Funds (ETFs) are investment funds that are traded on stock exchanges, much like stocks. They hold assets such as stocks, commodities, or bonds and generally operate with an arbitrage mechanism designed to keep trading close to its net asset value, though deviations can occur. ETFs offer liquidity and are typically passively managed, aiming to replicate the performance of a specific index.

Mutual Funds, on the other hand, pool money from many investors to purchase securities. They are managed by professional portfolio managers who actively make investment decisions. Mutual funds are not traded on exchanges and are priced at the end of the trading day.

GlobalData Strategic Intelligence

US Tariffs are shifting - will you react or anticipate?

Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.

By GlobalData

Both types of funds provide investors with the opportunity to invest in a diversified portfolio of retail companies, reducing the risk associated with investing in individual stocks.

Key retail ETFs to consider

For investors looking to gain exposure to the retail sector through ETFs, several options are noteworthy:

  • SPDR S&P Retail ETF (XRT): This fund tracks the S&P Retail Select Industry Index, providing exposure to a broad range of retail companies. It is known for its equal-weighted approach, ensuring no single company dominates the fund’s performance.
  • VanEck Retail ETF (RTH): Focusing on large-cap retail companies, RTH offers exposure to well-established retailers. Its portfolio includes companies like Amazon and Walmart, which are significant players in the retail industry.
  • ProShares Online Retail ETF (ONLN): This fund targets companies that derive a substantial portion of their revenue from online retailing. It provides exposure to the growing e-commerce segment, which has seen significant growth in recent years.
  • Amplify Online Retail ETF (IBUY): Similar to ONLN, IBUY focuses on companies with a strong online presence. It includes a mix of traditional retailers with robust online operations and pure-play e-commerce firms.
  • Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RSPD): While not exclusively a retail fund, RSPD includes a significant portion of retail companies within its consumer discretionary sector. Its equal-weighted approach ensures balanced exposure across its holdings.

These ETFs offer various strategies and exposures within the retail sector, catering to different investment preferences and risk tolerances.

Benefits of investing in retail funds

Investing in retail-focused funds presents several advantages:

  • Diversification: By investing in a fund, investors gain exposure to a basket of retail companies, reducing the risk associated with individual stock investments.
  • Access to Industry Trends: Retail funds provide a way to capitalise on consumer spending trends and the growth of e-commerce.
  • Professional Management: Mutual funds offer the benefit of professional management, with portfolio managers making investment decisions on behalf of investors.
  • Liquidity: ETFs offer liquidity, as they can be bought and sold throughout the trading day at market prices.
  • Cost-Effectiveness: ETFs typically have lower expense ratios compared to mutual funds, making them a cost-effective option for investors.

Considerations before investing

Before investing in retail-focused funds, investors should consider the following:

  • Economic Sensitivity: The retail sector is sensitive to economic cycles. During economic downturns, consumer spending may decrease, affecting the performance of retail companies.
  • Interest Rates: Rising interest rates can lead to higher borrowing costs for retailers, potentially impacting their profitability.
  • Competition: The retail industry is highly competitive, with companies constantly vying for market share. Investors should assess how well a company is positioned to compete in the market.
  • Online vs. Brick-and-Mortar: The shift towards online shopping has disrupted traditional retail models. Investors should consider how companies are adapting to this change.
  • Fund Fees: While ETFs generally have lower fees, it’s essential to compare the expense ratios of different funds to ensure cost-effectiveness.

The takeaway

Retail-focused investment funds offer investors a means to participate in the retail sector’s growth and evolution.

By understanding the types of funds available, their benefits, and the considerations involved, investors can make informed decisions that align with their financial goals and risk tolerance.

Whether through ETFs or mutual funds, these investment vehicles provide a diversified approach to accessing the retail industry, catering to various investment preferences and strategies.