3 Online Retail ETFs For Your Holiday Shopping List
The spicy pumpkin scent gives way to peppermint. Mariah Carey has a spike in her residual checks. Commercials for Chia Pets are returning to the airwaves.
The holiday season shopping spree has officially started – and that could be good news for a multitude of investments, including online retail exchange-traded funds (ETFs).
This year promises to be a little different from the Black Fridays of yesteryear. The way people shop has fundamentally changed over the years – from physical to digital – but the COVID-19 pandemic has been fuel for e-commerce.
We’ve already gotten a taste of this during the 2020 holiday season, and while Americans don’t face much of the same COVID restrictions as last year, e-commerce is still expected to play a huge role in the push. end of 2021 retail sales.
A Deloitte survey shows Americans plan to spend 62% of their vacation budget online, compared to 33% in-store (with the remaining 5% spent through direct mail, catalogs, and other sources). Although that number is slightly down from last year’s record 64%, it is still a clear majority and the second-largest number on record.
This is great news for eCommerce stock owners. And even better for potential new buyers: many stocks in the sector are at relatively attractive valuations.
“While internet and direct marketing retailers have traditionally traded at a multiple of premium P / E relative to the broader consumer discretionary sector, the premium was recently below the historical average, creating a potential buying opportunity in using ETFs, ”said Todd Rosenbluth, head of ETFs and mutual fund research at independent research agency CFRA.
Here we take a look at three online retail ETFs that are worth a closer look, especially as the holiday season approaches. Each represents a different way of slicing and dicing the industry.
The data is as of November 15.
Amplify Online Retail ETFs
- Assets under management: $ 905.5 million
- Expenses: 0.65%, or $ 65 a year for every $ 10,000 invested
The Amplify Online Retail ETFs (IBUY, $ 112.99) is the oldest and largest pure-play ETF covering the world of e-commerce. It has a basket of businesses that derive “significant income from online and virtual retail sales.” In this case, “significant” means that in order to be included in the underlying IBUY index, a company must generate 70% or more of its revenue from online sources.
IBUY must hold at least 75% of its assets in companies based in the United States, and this is currently the case with the remaining 25% invested in stocks from Germany (5.5%), China (4 , 6%) and the United Kingdom (3.9%), among others.
The holdings are weighted equally within their geographic pools and the index is rebalanced semi-annually. For example, $ 1.8 trillion Amazon.com (AMZN) – which has a massive presence in market-capitalization-weighted retail ETFs – currently accounts for just 1.7% of IBUY’s assets, well outside the top 10. This gives smaller outfits, such as the mid-caps BigCommerce Holdings (BIGC) and The RealReal (REAL), all of which are opportunities to impact returns.
This is great for investors as it gives them more exposure to potentially faster growing e-commerce companies. It’s much harder to move a big ship, like Amazon with its $ 386 billion plus annual revenue, than it is to move the needle on small online retail businesses.
This focus on big and small players seems to be the key to his success. IBUY has generated a total return (price plus dividends) of 350% since its inception in April 2016, compared to 173% for the consumer discretionary sector and 148% for the S&P 500.
Perhaps the only blow to Amplify’s fund is its cost. A few years ago, we might not have looked at the 0.65% fee, but given that it’s now common to see thematic ETFs charging 0.40% or less, IBUY seems a bit pricey. . However, given its performance, as well as a five-star rating from CFRA’s forward-looking analysis methods, the price is justifiable.
Learn more about IBUY on the supplier site Amplify.
ProShares Online Retail ETFs
- Assets under management: $ 890.8 million
- Expenses: 0.58%
Of course there is something to say to own a lot from Amazon.com. The massive size and reach of the business has allowed Amazon to continue to grow by simply leaning into new categories and often dominating through simple resources.
If you agree, you will probably appreciate the five stars of the CFRA ProShares Online Retail ETFs (ONLN, $ 71.32), too.
ONLN is focusing on global retailers that “sell primarily online or through other non-store channels,” which is similar to IBUY’s goal. However, while IBUY is equally weighted, the ONLN has a modified market cap weighted approach to construction. In other words, the biggest companies – names like Amazon, Alibaba (BABA), and eBay (EBAY), among others – get the biggest clout.
“CFRA has STARS qualitative analytical coverage of 11 global companies in the Internet retail and direct marketing subsector, spread across four buys, six holds and one strong sell,” said Rosenbluth. “AMZN and EBAY, which are the two US-domiciled companies recommended for purchase, are the first and third positions in ONLN, together accounting for 29% of the assets. “
This is not necessarily a bad thing. For example, CFRA expects Amazon to continue growing its e-commerce market share and AWS cloud business, and thinks that while some may have delisted EBAY, “we see a place. for several large third-party seller platforms and consider EBAY’s strong position in unique and second-hand products, as well as its iconic brand, as the foundation for a potentially larger and more sustainable return to growth. “
It should be noted, however, that the more conservative and cautious focus on large caps of the ProShares Online Retail ETF may weigh on its returns. ONLN’s three-year average annual return is 30.2%, 6.4 percentage points lower than Amplify’s IBUY. The fees are also a bit expensive, although at 0.58% per annum they are cheaper than IBUY.
Learn more about ONLN on the vendor site ProShares.
VanEck Retail ETF (RTH)
- Assets under management: $ 245.8 million
- Expenses: 0.35%
Our third option is not what you would typically think of as an online retail ETF.
The VanEck Retail ETFs (RTH, $ 193.18) is a fund filled with brick and mortar dinosaurs. Just look at the major titles: Walmart (WMT), Target (TGT), Home Depot (HD), and Best Buy (BBY) are big box retailers.
Here’s why RTH is a good game about growing online spending nonetheless:
On the one hand, the aforementioned companies – and most of RTH’s other holdings, for that matter – survived the Amazonpocalypse by setting up impressive omnichannel operations (physical and digital) that evolved further during the pandemic. Walmart, for example, is still a source of digital growth, with online sales surging 79% year-over-year in the fiscal year ended Jan.31, 2021.
In addition, RTH owns a few games primarily online. The most remarkable of these is – surprise, surprise – Amazon.com, which accounts for nearly 19% of assets. Chinese JD.com (JD) and US online home goods store Wayfair (W) combine for an additional 5%.
Because of their mandates, the major online retail ETFs don’t include many classic brick and mortar chains that have figured out how to navigate the new buying environment. It’s a real shame, as they leave several attractive holdings on the table.
By using RTH in conjunction with an ONLN or IBUY, investors can own much more of the entire online retail pie, from newcomers to established digital names to omnichannel success stories.
And at 0.35%, there are no complaints about the cost.
Learn more about RTH on the supplier VanEck website.