Anyone who tells you that “retail is dead” likely hasn’t looked at the VanEck Retail ETF (NASDAQ:RTH), which owns some powerhouse retail stocks and has been surprisingly outperforming the broader market over the past five and 10 years.
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I’m bullish on this underrated VanEck ETF based on its quietly strong track record of generating strong returns over a long time frame and its strong portfolio of highly-rated retail stocks, which go beyond what many investors may typically think of as retail.
What Is the RTH ETF’s Strategy?
According to fund sponsor VanEck, RTH invests in an index called the “MVIS US Listed Retail 25 Index (MVRTHTR), which is intended to track the overall performance of companies involved in retail distribution, wholesalers, on-line, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers.” RTH gives investors access to “25 of the world’s largest and most traded retailers.”
VanEck noted, “Technology and innovation are remaking the retail industry,” an important fact that we’ll delve into when we discuss RTH’s holdings in the next section.
More Than Just the Mall and Shopping Centers
RTH owns 25 stocks, and its top 10 holdings make up 71.5% of the fund. Below, you’ll find an overview of RTH’s top 10 holdings using TipRanks’ holdings tool.
When many people think of retailers, they first think of half-empty clothing and footwear stores at the mall fighting to stay relevant amid declining foot traffic or moribund discount retailers in declining shopping centers. Understandably, this is most likely a part of the market that they are keen to avoid. But RTH looks beyond these uninspiring examples and shows that there is much more to the retail sector.
You may be surprised to find a stock like Amazon (NASDAQ:AMZN) here, as many people think of the mega-cap $1.9 trillion behemoth as a tech stock. But its massive logistics network and expansive shopping platform, which gives customers the convenience of shopping from home with one-click checkout, not to mention free and fast delivery for Amazon Prime members, have made it a retail juggernaut to be reckoned with. Amazon is by far the fund’s top holding, with a weighting of 20%.
Beyond Amazon, RTH features large positions in several other shining stars within the retail sector, including Home Depot (NYSE:HD), Costco (NASDAQ:COST), and Walmart (NYSE:WMT), which have weightings of 9.1%, 8.2%, and 7.2% within the fund, respectively.
They may not be the most glamorous or exciting stocks out there at first glance, but they have been incredible performers for a long time. You might not be surprised to hear that much-hyped shares of Amazon have returned 888.1% over the past decade.
But don’t overlook the other three stocks, which haven’t exactly been slouches either. In fact, Costco has narrowly outperformed Amazon with a total return of 905.0% over the past 10 years, while Home Depot clocks in with a total return of 519.0%, and Walmart has returned a respectable 198.8% over the same time frame.
Essentially, RTH has harnessed the strong performance of these four large holdings to propel itself to excellent returns over the past decade, as we’ll discuss further in the next section.
Additionally, it’s worth noting that while all four of these stocks have been home runs over the past decade, they also all boast Outperform-equivalent TipRanks Smart Scores of 8 or above.
The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating. Top holding Amazon enjoys a 9 out of 10 Smart Score, and so does Home Depot. Meanwhile, Costco and Walmart all receive Smart Scores of 8 out of 10.
Further down the list of top 10 holdings, CVS Health (NYSE:CVS) and McKesson (NYSE:MCK), which many may associate more with healthcare than retail but are nevertheless retailers in their own right, both receive ‘Perfect 10’ Smart Scores.
RTH itself receives an Outperform-equivalent ETF Smart Score of 8.
Surprisingly Strong Performance
As discussed above, top holdings like Amazon, Home Depot, Costco, and Walmart have helped drive RTH to strong returns over the years. How strong are we talking?
As of February 29th, the retail-themed ETF has produced a three-year annualized return of 11.3%. This slightly trails the return of the broader market. The Vanguard S&P 500 ETF (NYSEARCA:VOO) sports a three-year annualized return of 11.9% as of the same date.
But once you zoom out to a longer time frame, RTH actually beats the broader market over the past five and 10 years. As of February 29th, RTH has an excellent five-year annualized return of 16.0%, narrowly beating out VOO’s return of 14.7%. Similarly, RTH’s 10-year annualized return of 14.3% also beats VOO’s 10-year annualized return of 12.7%.
What Is RTH’s Expense Ratio?
With an expense ratio of 0.35%, RTH doesn’t necessarily stand out for being dirt cheap, but it is still significantly less expensive than the average expense ratio for all ETFs, which is currently 0.57%.
Does RTH Pay a Dividend?
Dividends are not the main attraction here, but RTH is a dividend payer and currently yields 1.0%.
Is RTH Stock a Buy, According to Analysts?
Turning to Wall Street, RTH earns a Strong Buy consensus rating based on 23 Buys, three Holds, and zero Sell ratings assigned in the past three months. The average RTH stock price target of $227.80 implies 8.1% upside potential.
More Than Meets the Eye
While some investors will understandably shudder at the “retail” part of RTH’s name, its impressive performance over the long term and its strong underlying holdings show why you can’t always judge a book by its cover and why it pays to look beneath the surface and evaluate an ETF’s holdings.
I’m bullish on RTH, given its admirable performance over the years and its strong portfolio, which consists of large positions in long-term retail winners with impressive Smart Scores like Amazon, Home Depot, Costco, and Walmart.
