An Update on the Expected Demise of the Retail Sector

I wrote an article back in November highlighting the way that ETFs are often launched once an investment thesis has become way oversubscribed.  I walked through the recent example of the ProShares Decline of the Retail Store ETF, ticker EMTY (no kidding).  Can you guess what happened next?

Hat tip to Bloomberg for updating the story and illustrating the performance of this ETF since inception.  It turns out that stocks like Foot Locker (FL) bottomed out just as this ETF was made available to investors.

Here's a chart of the Decline of the Retail Store ETF (EMTY), the S&P SPDR Retail ETF (XRT) and the S&P 500 (SPX) as a base case for comparison.

Source: Optuma, Bloomberg

Here we see EMTY down over 17% since inception (November 2017), the S&P 500 up 7% and retail stocks up 20%.

What's interesting is what you see when you add Foot Locker to the visualization, representing the largest weighting in the XRT.

Source: Optuma, Bloomberg

Now we see the rest of the return data in proper context.  Foot Locker was up almost 80% over this same time frame, suggesting a long FL, short EMTY pairs trade would have yielded a healthy return in seven months.

For years, investors have used magazine covers to get a sense of when to make a contrarian bet based on investors' appetite for a certain investment theme.

If someone like Humphrey Neill had ETF launches to think about, he may not have even bothered with magazines!


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