The Q4 earnings season has been weak across all sectors with growth harder to come by in a slowing global economy, a stronger U.S. dollar, and weakness in oil. In fact, Q4 may be the third quarter in a row of negative earnings growth.

However, with about half of the Q4 reports yet to come, retail is faring better than many other sectors. Total earnings for the retail sector that has reported so far are up 6.8% on 11.8% revenue growth. Notably, revenue growth of this sector has been the best so far this season. This is especially true given the robust numbers from retailers like Whole Foods Market (WFM - Analyst Report), Yum! Brands (YUM - Analyst Report) and Michael Kors (KORS - Analyst Report). 
 
The strength is likely to continue when the big retailers like Wal-Mart (WMT - Analyst Report) and Nordstrom (JWN - Analyst Report) reports earnings results tomorrow. Other major retailers such as Home Depot (HD - Analyst Report), Macy’s (M - Analyst Report), Lowe’s (LOW - Analyst Report), Target (TGT - Analyst Report), Gap Inc. (GPS), and Kohls (KSS) releases earnings reports next week.

Solid Trends

Though consumer spending, which accounts for more than two-thirds of U.S. economic activity, moderated in the final quarter of 2015 buoyed by more savings, it started regaining momentum lately as consumers began to reap the benefits of a slowly but recovering economy, better job and wage prospects, and a lower oil price. As a result, retail sales edged up 0.2% in January, better than the market expectation of 0.1% growth.

Further, U.S. consumer confidence is improving, as measured by the Conference Board. The Consumer Confidence Index jumped to 98.1 in January from a revised 96.3 in December while the index of consumer expectations for the next six months climbed to 85.9 in January from 83 (see: all the Consumer Discretionary ETFs here).

Moreover, the upside to this segment could be confirmed by the Zacks Industry Rank, as three-fifths of the industries falling under this segment have a solid Rank in the top 42% at the time of writing.

ETFs to Buy

Given encouraging fundamentals and a spate of earnings releases this week and in the next, investors should carefully watch the movement in retail stocks and could consider a broad play via ETFs in order to take advantage of the power-packed earnings releases seen so far and solid trends.

For this, looking at some of the top-ranked retail ETFs having a Zacks ETF Rank of 1 (Strong Buy) or 2 (Buy) could be excellent picks as these funds have potentially superior weighting methodologies, which could allow them to outperform in the coming months (read: all the Top Ranked ETFs).

SPDR S&P Retail ETF (XRT - ETF report)

This product tracks the S&P Retail Select Industry Index, holding 100 securities in its basket. It is widely spread across each component as none of these holds more than 1.48% of total assets. Small cap stocks dominate nearly three-fifths of the portfolio while the rest have been split between the other two market cap levels.

In terms of sector holdings, apparel retail takes the top spot at one-fourth share while specialty stores, automotive retail and Internet retail also have double-digit allocation each. XRT is the most popular and actively traded ETF in the retail space with AUM of about $404.5 million and average daily volume of more than 4.3 million shares. It charges 35 bps in annual fees and gained 3.8% over the past one month. The fund has a Zacks ETF Rank of 1.

Market Vectors Retail ETF (RTH - ETF report)

This fund tracks the Market Vectors US Listed Retail 25 Index and holds about 26 stocks in its basket. It is a large cap centric fund and is heavily concentrated on the top 10 holdings with 64.1% of assets. The largest allocations go to Amazon.com (AMZN), Home Depot and Wal-Mart (read: ETFs to Watch Post Amazon's Big Earnings Miss).

Sector wise, specialty retail occupies the top position with less than one-third share, followed by double-digit allocation to Internet and catalogue retail, hypermarkets, drug stores, departmental stores and health care services. The fund has amassed $151 million in its asset base while average daily volume is moderate at about 77,000 shares. Expense ratio came in at 0.35%. The product lost 0.7% over the past one month and has a Zacks ETF Rank of 2.

PowerShares Retail Fund (PMR - ETF report)

This retail fund provides a diversified exposure across various market caps with 45% in large caps, 43% in small caps and the rest in mid caps. This is easily done by tracking the Dynamic Retail Intellidex Index. The fund has accumulated just $21.4 million in its asset base while trades in a light volume of under 5,000 shares a day. The ETF charges 63 bps in fees per year.

In total, the product holds 29 securities with none accounting for more than 6.12% of assets. In terms of industrial exposure, specialty retail takes the top spot at 48%, while food retail (19%) and drug stores (12%) round off the top three positions. PMR is relatively flat over the past one month and has a Zacks ETF Rank of 2.