RTH ETF: Question & Answer

This blog is intended to answer frequently asked questions regarding the retail sector and more specifically, VanEck’s Retail ETF (RTH).

• What is the current outlook for the retail sector?
• Why is the retail sector performing well despite market conditions?
• What advantages does the VanEck Retail ETF have over its peers?
• Why are the larger companies in this sector outperforming smaller companies?
• What is the investible universe for the index?
• How is the fund’s index constructed?
• How frequently is the index rebalanced and reconstituted?
• How can investors buy VanEck ETFs?

What is the current outlook for the retail sector?

The retail sector, a vital component of the modern economy, has undergone significant transformation in recent years, driven by technological advancements and shifting consumer preferences. In the wake of these transformative forces, the outlook for the retail sector remains dynamic and complex.

One prominent trend that has emerged is the continued growth of e-commerce. Consumers increasingly prefer the convenience of online shopping, which has led to a surge in digital retail sales. Retailers have responded by investing in their online infrastructure, creating omnichannel shopping experiences seamlessly integrating their physical and digital platforms. As a result, the online retail market is poised to continue to expand, presenting opportunities for those retailers that can adapt to the evolving landscape.

This opportunity set does not come without uncertainties and risks. Supply chain disruptions, labor shortages, and inflationary pressures pose ongoing challenges to the retail industry. Additionally, consumers' environmental and ethical considerations are driving demand for sustainable and socially responsible practices, requiring retailers to rethink their supply chains and business models.

It's reasonable to conclude that the outlook for the retail sector is a mixed landscape of opportunities and challenges. E-commerce is expected to continue its growth trajectory, but traditional retailers must innovate to remain competitive. The sector must also navigate ongoing uncertainties related to supply chain disruptions and changing consumer preferences. Sustainability and social responsibility are becoming increasingly important factors in consumer decision-making, further emphasizing the need for retailers to adapt to these evolving trends. Overall, the retail sector's future hinges on its ability to embrace digital transformation, resilience, and adaptability to meet the changing demands of the modern consumer.

Why is the retail sector performing well despite market conditions?

The recent growth of the retail sector can largely be attributed to the aggregate consumer strength, precisely the strength of the U.S. consumer. As of late, consumers have been bombarded by record-breaking inflation and interest rates. Even with these headwinds, American consumers have remained resilient. Discretionary spending on more miniature retail goods remains robust. This could be at least partially due to the integration of technology.

The retail sector is defined by innovation and technology. Companies that have embraced e-commerce and an omnichannel retail strategy have enhanced the customer experience and brand loyalty. Additionally, the retailers that have implemented point-of-sale installment loans via BNPL platforms can convert more sales and smooth a portion of their positive cash flows.

What advantages does the VanEck Retail ETF have over its peers?

The companies that dominate the VanEck Retail ETF (RTH) are those that have led the pack in retaining customer loyalty, created a seamless, omnichannel customer experience, led the market in international expansion, and inspired new and existing workforce to stick with them throughout ever-shifting market conditions.

The index’s free-float market capitalization weighting methodology has been the primary reason the fund has generated superior returns relative to other retail-oriented funds. By market cap weighting the portfolio, the largest companies in the sector receive a heavier-handed weight when the portfolio is rebalanced. This index construction offers investors enhanced access to the companies that have successfully implemented technology and an omnichannel retail strategy.

These trends are evident in the chart below, where the fund’s performance is illustrated, outpacing both the broad consumer discretionary sector and the S&P 500 since its inception in 2011.

RTH Outperforms the S&P and Consumer Discretionary Sector Since Its Inception

Source: Morningstar. As of 9/30/2023. The performance data quoted represents past performance. Past performance is not a guarantee of future results. Performance may be lower or higher than the performance data quoted.

Source: Morningstar.

^* Returns less than one year are not annualized.

The performance data quoted represents past performance. Past performance is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended.

An investor cannot invest directly in an index. The table presents past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reimbursements. Had the ETF incurred all expenses and fees, investment returns would have been reduced. Investment returns and ETF share values will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. ETF returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV.

The S&P 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2023 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit https://www.spglobal.com/spdji/en/. S&P^® is a registered trademark of S&P Global and Dow Jones^® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

The S&P 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector; as an Index, it is unmanaged and is not a security in which investments can be made.

Van Eck Associates Corporation (the “Adviser”) will pay all expenses of the Fund, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes and extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to pay the offering costs until at least February 1, 2024. “Other Expenses” have been restated to reflect current fees.

Why are the larger companies in this sector outperforming smaller companies?

The largest retailers hold a competitive edge over smaller counterparts primarily due to economies of scale. Their ability to purchase goods in bulk at lower unit costs enables them to offer more competitive prices to consumers. This cost-efficiency bolsters profit margins and is a significant entry barrier for smaller competitors.

Brand recognition and trust play a pivotal role in the success of larger retailers. Established brands with a history of quality products and services tend to attract a larger customer base, while smaller retailers must work harder to establish and maintain consumer trust.

More significant financial resources allow larger retailers to invest in research and development, marketing, technology infrastructure, and expansion into new markets or product lines. These investments enhance operational efficiency and support innovation, providing a further advantage.

Negotiating power with suppliers is another benefit enjoyed by larger retailers. They can secure better terms, lower prices, and exclusive deals, positively impacting their cost structure and profitability.

Lastly, their resources and infrastructure facilitate larger retailers' ability to adapt to changing consumer preferences and market trends. They can quickly pivot their strategies to accommodate shifts in the market, providing them with a distinct advantage over smaller retailers.

What is the investible universe for the index?

The MVIS^® US Listed Retail 25 Index includes U.S. exchange-listed companies that derive at least 50% (25% for current holdings) from retail.¹ This includes companies engaged primarily in retail distribution, wholesalers, online, direct mail retailers, multi-line retailers, and specialty retailers, such as apparel, automotive, computer and electronics, drug, home improvement, home furnishing retailers, and food and other staples retailers.

How is the fund’s index constructed?

The MVIS^® US Listed Retail 25 Index is comprised of 25 components, which are weighted by their free-float market capitalization. The index provider categorizes the companies that exceed an individual weight of 4.5% as “large weights.” At least 5 companies, but no more than 10, constitute the large weights category. The total weighting of these large weights is capped at 50% of the portfolio.²

How frequently is the index rebalanced and reconstituted?

The index is rebalanced every quarter in March, June, September, and December. The review occurs on a semi-annual basis in March and September.

How can investors buy VanEck ETFs?

Learn more here.

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