| Upcoming
Retail HOLDRs Look Familiar
By John Spence
April 23, 2001 |
|
More and more individual investors are recognizing the benefits
that exchange-traded funds (ETFs)
and HOLDRs offer as a cheap way to gain exposure to different
sectors of the economy. However, as with traditional mutual funds,
it's important to examine the stock holdings of an ETF or HOLDRs
for overlap if a broadly diversified portfolio is your goal. For
example, many investors who sought diversification exclusively
through Janus suffered last year because many of the funds
in the family held the same tech stocks.
For you sports fans following the NBA Playoffs, imagine the prospect
of coaching a team comprised entirely of big, bruising centers
cloned from Shaquille O'Neal. Sure, it sounds great - a constant
highlight reel of earth-shattering slam-dunks. But talented as
he is individually, Shaq relies on the rest of his team and the
many "role players" to provide a balanced attack that
wins championships. The same line of thinking can be applied when
building a diversified portfolio that will stand the test of time
and lead you to the promised land of higher returns.
Let's look at an example of stock overlap in an ETF and a HOLDRs.
Merrill Lynch filed with the SEC to launch a new HOLDRs trust
based on the retail sector. According to the the prospectus in
the S-1 preliminary filing that was submitted on February 2, Retail
HOLDRs (proposed ticker: RTH) will invest in "companies
that, among other things, sell retail merchandise to consumers
through traditional retail stores, the Internet, mail order catalogs
and other outlets."
But if you look under the hood at the constituents of this new
HOLDRs, you'll find it looks a lot like something that's already
out there, namely the Cyclical/Transportation Select SPDR
(XLY).
The Cyclical/Transportation Select Sector Index includes building
materials, retailers, appliances, housewares, air transportation,
automotive manufacturing, shipping, and trucking. Of the 20 stocks
to be held in Retail HOLDRs, 14 are also held by XLY. Check
out the distributions below:
| Holding |
HoldingTicker |
RTH% |
XLY% |
| Wal-Mart Stores Inc |
WMT |
19.85% |
20.43% |
| Home Depot Inc |
HD |
19.29% |
12.06% |
| Target Corporation |
TGT |
6.30% |
4.01% |
| Lowe's Co Inc |
LOW |
4.47% |
2.81% |
| Gap Inc |
GPS |
4.14% |
2.48% |
| Kohls Corp |
KSS |
4.04% |
2.69% |
| Costco Wholesale Corp |
COST |
3.43% |
2.22% |
| May Department Stores Co |
MAY |
2.32% |
1.40% |
| Sears Roebuck & Co |
S |
2.31% |
1.55% |
| Federated Department Stores Inc |
FD |
1.81% |
1.10% |
| TJX Companies Inc |
TJX |
1.75% |
1.26% |
| Best Buy Co Inc |
BBY |
1.57% |
1.00% |
| Limited Inc |
LTD |
1.37% |
0.90% |
| RadioShack Corp |
RSH |
1.20% |
0.91% |
Source: Securities & Exchange Commission,
www.spdrindex.com, data as of 3/30/2001
Merrill Lynch is responsible for the stock selection
for all HOLDRs and all Select SPDRs. In the case of the Select
SPDRs, Merrill selects baskets of stocks from the S&P 500
to represent sectors of the economy.
Although ETFs and HOLDRs can be valuable low-cost tools for the
diversified indexer, the above example demonstrates the importance
of looking beyond a name. Keep in mind that similar products can
sometimes be packaged and marketed in different ways. As a general
rule, examining the nuts and bolts of a fund or trust can help
prevent repetition in your portfolio, and repetition is the enemy
of diversification.
