As has been widely noted, some retail exchange traded funds are being pinched by shoppers’ ongoing preference for online shopping. Much of that trend is being driven by Amazon.com Inc. (NASDAQ: AMZN), the largest e-commerce company.
Conversely, next-generation retail ETFs with significant exposure to Amazon and the online shopping theme are benefiting. The ProShares Online Retail ETF (ONLN) is one of the funds in that group. A small amount of US-listed ETFs allocate more than 20% of their weight to a single stock, but ONLN is in that group via a roughly 25% weight to Amazon.
While that big weight to a single stock signals some potential concentration risk, ONLN’s massive Amazon exposure is benefiting investors this year. The ETF is up nearly 28% year-to-date while the SPDR S&P Retail ETF (XRT ), which is more of a traditional retail play, is higher by just 9.32%.
“Measuring the impact of Amazon.com Inc. on exchange-traded funds just got easier, thanks to a new ‘Death By Amazon’ gauge from CFRA Research,” reports Bloomberg. “Retailers at risk from the Seattle-based company’s expansion underperformed the S&P 500 Index by more than 10 percentage points in the year through April 25, according to the benchmark. The equally-weighted portfolio, which includes Barnes & Noble Inc., Office Depot Inc. and Williams-Sonoma Inc., returned 5.9 percent for the period, lagging Amazon’s 27 percent gain.”
Compelling Data for Online Shopping
Shopping and consumer trends are changing as more buyers rely on the convenience of online retailers to quickly and effectively meet their discretionary needs. As the retail landscape changes, investors can also capitalize on the trend through exchange traded funds that target the e-commerce segment.
“E-commerce represented a growing share of the retail market in 2018, taking a 14.3% share of total retail sales last year, up from 12.9% in 2017 and 11.6% in 2016,” notes Digital Commerce 360. “More significant is that ecommerce sales represented more than half, or 51.9%, of all retail sales growth. This is the largest share of growth for purchases made online since 2008, when ecommerce accounted for 63.8% of all sales growth.”
Over time, ONLN’s exposure to Amazon could continue benefiting investors as more shoppers transition to online venues away from brick-and-mortar stores.
“While CFRA’s index is not designed to be investible — it was the focus of a report this week — the gauge highlights the importance of knowing what an ETF actually owns. While some funds are set to benefit from Amazon’s successes, others are heavily exposed to firms that the retail giant is slowly killing,” according to Bloomberg.
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