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#ETF Focus: GameStop stock surge drives retail ETF to best week since April as market tumbles

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#ETF Focus: GameStop stock surge drives retail ETF to best week since April as market tumbles

GameStop’s stock has surged over the past week, dragging a popular exchange-traded fund along for the ride and, perhaps, highlighting the potential problems of the equal-weighted fund.

The SPDR S&P Retail ETF
XRT,
+3.13%,
which holds a basket of retail stocks in the same proportion, has risen nearly 20% so far this week, representing its biggest run-up since the week ended April 9, FactSet data show.

That rise comes as GameStop shares, currently now the biggest weighting in the index due to its staggering run-up in recent days, has soared 416% this week and 1,675% so far in January.

The retail ETF, which tends to go by its ticker symbol XRT, is an equal-weighted fund, where the 95 components are rebalanced every three months to maintain a roughly 1% weighting, including giants like Walmart Inc.
WMT,
-1.89%.

An equal-weight ETF means that the smallest company has the same influence on the benchmark as the largest by market value.

GameStop’s market value stands at nearly $22 billion midday Friday from around $1.3 billion at the start of 2021—a stunning climb. Comparatively, WalMart’s value is $400 billion, versus $407 billion at the start of January.

See: GameStop, AMC, other heavily shorted stocks soar as Robinhood allows limited buying

GameStop’s surge has captured the attention of Wall Street and Main Street as it reflects a battle between a group of amateur investors using social-media platforms like Reddit and Discord to exchange information on stock targets and challenge hedge fund professionals betting that these shares will fall in value.

On Friday, GameStop and shares of AMC Entertainment Holdings
AMC,
+44.03%
and other stocks considered heavily shorted by hedge fund pros, were rallying following Robinhood Markets decision to lift certain restrictions on trading those popular stocks that it had curbed earlier.

As they surge in GameStop has continued, the influence on the XRT has increased, highlighting the downside to the fund that targets smaller-cap retail names to offer broad-based exposure to investors to the retail sector.

Barron’s, MarketWatch’s sister publication, points out that the ETF will be rebalanced in March 19, as it is every three months, to bring the values of its constituents back to around a 1% weighting.

Until then, GameStop will hold an outsize influence.

Worries about GameStop and AMC hurting other parts of the market were also rattling investor sentiment, with the Dow Jones Industrial Average
DJIA,
-2.04%,
the S&P 500 index
SPX,
-2.04%
tumbling Friday.

—Tom Destefano contributed to this article

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