ETFs

Top 5 E-Commerce ETFs For Investing In Online Retail

Person holding a bunch of shopping bags
Credit: Shutterstock

The way we shop is changing. Today, the biggest shopping malls and stores fit right into our desktop and mobiles screens. This shift has disrupted the retail landscape and has put brick and mortar stores under tremendous pressure. The emergence of online platforms, busy lifestyles, better incomes, penetration of mobile devices and access to internet have all together been instrumental in the bringing a shift in the retail consumer mindset and mode of purchase.

Here’s a look at the investing opportunities offered by online retail, also known as e-commerce

Brick and mortar stores have felt the heat of this change. Many have witnessed declines in sales with profit margins shrinking. An increasing number of retailers have filed for bankruptcy while many struggle to remain afloat. A report on store closures and openings in the U.S. suggests that major retailers have announced 7,567 store closures so far this year. In 2018, 5,524 stores were closed. While there are some select stores and outlets that continue to expand, the number of store openings is much smaller than closures. In 2018, 3,083 stores opened while the number is likely to be 3,064 in 2019.

As physical store sales remain under pressure, eMarketer estimates global e-commerce will reach $3.54 trillion in 2019 and $6.54 trillion by 2023. The percentage share of e-commerce will go up to 20% from the current percentage of 14%; the global retail market is estimated to rise to $29.76 trillion by 2023, up from $25 trillion in 2019. According to the U.S. Census Bureau of the Department of Commerce, U.S. retail e-commerce sales for the second quarter of 2019 stood at 10.1% of total sales.

There is a high percentage of people in developed nations with access to the internet and devices which enable online shopping, but the percentage is still low in developing nations. There reflects an opportunity for retailers...and investors. The proliferation in mobile devices and increasing internet services, especially in developing markets, have the potential to add a huge new e-commerce consumer base. Today, India, China, Mexico, the Philippines, Malaysia, Canada, Argentina, Russia, Indonesia and South Korea are among the fastest growing e-commerce markets.

Here’s an overview of ETFs in this space

Launched in 2016, Amplify Online Retail ETF (IBUY) is one of the oldest ETFs in this space. The fund tracks the EQM online Retail Index, which is a globally diverse basket of publicly traded companies that obtain 70% or more revenue from online sales. The fund has a portfolio of around 40 stocks spread across market capitalizations with a large cap bias. In addition to the U.S. (75%), the fund provides exposure to global markets such as China, the United Kingdom, Japan and Germany. The fund has close to $250 million as assets under management, an expense ratio of 0.65% and has delivered 23.97% year-to-date returns. The top ten stock holdings add up to around 41%. They are:

  • Stamps.com
  • PetMed Express
  • Copart
  • Expedia
  • Carvana
  • Booking Holdings
  • eBay
  • IAC/InterActiveCorp
  • Amazon.com
  • Stich Fix

Launched in 2018, the Global X E-Commerce ETF (EBIZ) tracks the Solactive E-commerce Index, which focuses on companies positioned to benefit from the increased adoption of e-commerce as a distribution model. This includes companies that operate e-commerce platforms, sell products or services via such platforms or provide e-commerce software, analytics or services; in a nutshell, they generate the majority of their overall revenue from online retail. The fund posted 26.63% year-to-date returns. The top ten holdings have a total of 44% allocation, and they include:

  • NetEase
  • Etsy
  • Rakuten
  • Shopify
  • Booking Holdings
  • Alibaba
  • MercadoLibre
  • eBay
  • Amazon.com
  • Ocado
  • JD.com

The ProShares Online Retail ETF (ONLN) provides a concentrated exposure of around 20-24 stocks of primarily U.S. and China domiciled stocks that principally sell online or through other non-store channels. The fund tracks the ProShares Online Retail Index, which follows a modified market-capitalization weighted approach. The fund has $22.78 million as assets under management, an expense ratio of 0.58% and has posted 15.83% year-to-date returns. The top two holdings of the fund, Amazon and Alibaba, have a 35% allocation while the top ten add up to almost 73%. The names include:

  • Amazon.com
  • Alibaba
  • Stitch Fix
  • Stamps.com
  • Groupon
  • Chewy
  • Etsy
  • GrubHub
  • eBay
  • Shutterstock

A different version of that theme is offered by ProShares Long Online/Short Stores ETF (CLIX), which bets on the growth of online retail and the decline of brick and mortar stores in one fund. The fund combines a 100% long position in retailers that primarily sell online or through other non-store channels with a 50% short position in those that rely principally on physical stores. The ETF thus offers an opportunity to investors to benefit from both outperforming online and underperforming physical retailers. The fund was launched in 2017 and has $35 million as assets with an expense ratio of 0.65%. The fund is heavy-weight on two online titans—Amazon.com and Alibaba. The top ten holdings are:

  • Amazon.com
  • Alibaba
  • Stitch Fix
  • Stamps.com
  • Groupon
  • Chewy
  • Etsy
  • GrubHub
  • eBay
  • Shutterstock

Investors looking for a fund with a focus on the emerging markets can consider the Emerging Markets Internet & Ecommerce ETF (EMQQ). The fund provides an opportunity for investors to invest in emerging market stocks in the internet and e-commerce sectors. Launched in 2014, the fund operates in diverse markets such as India, China, Brazil, Turkey, Nigeria and Indonesia. The fund has $354.89 million as assets under management, an expense ratio of 0.86% and has delivered 17.9% year-to-date returns. The fund tracks the Emerging Market Internet Index, which is a slightly broad-based theme as it includes e-commerce and other internet-related activities that generate revenue. The fund ten holdings of the fund are:

  • Alibaba
  • Tencent
  • Pinduoduo
  • NAVER
  • MercadoLibre
  • NetEase
  • JD.com
  • Baidu
  • Naspers
  • Ctrip.com

Overall, with the growth of technology on a day to day basis, fast-paced lifestyles and rapid urbanization, this is only the beginning for the e-commerce segment.

Fund information based on respective websites as on October 23, 2019.

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Prableen Bajpai

Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.

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