Forget Broader Retail; Bet On Online Retail ETFs

Retail earnings in the first-quarter earnings season and retail sales data for April were completely diverging with the former mauling investor sentiment and the latter ushering in sweet surprises. The reason for this deviation was disappointing results from several traditional brick-and-mortar operators while web-based shopping surged (read: Retail Sales Back to Health; ETFs to Watch).

In a nutshell, consumers’ purchasing pattern is changing. Department stores like Macy’s (M), Kohl’s (KSS), J.C. Penney (JCP), Nordstrom (NYSE:JWN) (JWN) and many others soured investor mood this earnings season (read: Retailers Sink: Alarm Bell Ringing for ETFs as Q1 Unfolds?).

With this while many started to wonder if consumers are running short of cash and doubt economic well-being, a 1.3% jump in retail sales (sequentially) in April cleared all misconception.

As per tradingeconomics, sales growth was witnessed in 11 out of the 13 major categories. Sales at motor vehicle and parts (up 3.2%), gasoline stations (2.2%) and non-store retailers (2.1%) were the major growth drivers. In fact, April retail sales beat economists’ forecast of a 0.8% rise.
Online-Retailers Crushing Earnings Estimates

The online e-commerce behemoth Amazon (NASDAQ:AMZN) (AMZN) came up with stellar Q1 results. The company trumped the Zacks Consensus Estimate on both lies by wide margins. Higher-than-expected results were credited to increased demand for quick-turnaround delivery and gadgets like the Kindle and Echo as well as a fast-growing cloud computing business (read: Amazon Stock Pops on Stellar Q1 Results: ETFs to Benefit).

Another top player in this field, eBay Inc (NASDAQ:EBAY). (EBAY) beat on both lines. In fact, the company partnered with BigCommerce to benefit online retailers. Chinese e-commerce giant Alibaba (NYSE:BABA) Group’s (BABA) revenues came in higher than our estimate, though profitability was a letdown. This clearly explains online-retailers’ edge over the mall-based retailers.

Inside the Rise of Online-Retailers

As of now, online retail sales make up one tenth of total retail and about 5% of annual e-commerce revenue in the U.S. The space is developing fast with the increased usage of smartphones and other mobile Internet devices.

As per statista, in 2013, 41.3% of global internet users had purchased products online; the figure is expected to grow to 46.4% by 2017. More than the U.S., the real growth opportunities lay in the under-penetrated emerging markets.

Forget Retail; be Bullish on Online Retail

This situation makes it crucial to have a pure play online ETF. Amplify Exchange Traded Funds thus launched a new product, namely Amplify Online Retail ETF (IBUY) about a month ago. Except this, it is hard to get targeted exposure to online retail. But several consumer discretionary and internet funds serve this idea to a large extent. Below we highlight all in detail.

IBUY in Focus

This new fund holds about 44 stocks and charges 65 bps in fees. The fund is heavy on the U.S. (75%) followed by China (8%). The fund’s top three holdings are Overstock, Del and Wayfair. No stock accounts for more than 3.39% of the portfolio.

EMQQ Emerging Markets Internet & E-commerce ETF (EMQQ)

The fund gives exposure to the internet and ecommerce sectors of Emerging economies. Its top three holdings are Tencent (8.47%), Alibaba (8.36%) and Naspers (6.8%). It charges about 86 bps in fees. Since Goldman sees a boom in the Chinese internet segment, this ETF is worth a look given its notable exposure to the Chinese e-commerce segment.

Apart from these two, investors can also look at First Trust Dow Jones Internet Index Fund (FDN) with considerable exposure on Amazon (11.93%) and eBay (3.69%). Among the broad retail ETFs, VanEck Vectors Retail ETF (RTH) deserves a look as it invests about 15.43% weight Amazon.



AMPL-ONLN RETL (IBUY): ETF Research Reports

EM-INTRNT&ECMRC (EMQQ): ETF Research Reports

FT-DJ INTRNT IX (FDN): ETF Research Reports

VANECK-RETAIL (RTH): ETF Research Reports

AMAZON.COM INC (AMZN): Free Stock Analysis Report

EBAY INC (EBAY): Free Stock Analysis Report

ALIBABA GROUP (BABA): Free Stock Analysis Report

MACYS INC (M): Free Stock Analysis Report

KOHLS CORP (KSS): Free Stock Analysis Report

PENNEY (JC) INC (JCP): Free Stock Analysis Report

NORDSTROM INC (JWN): Free Stock Analysis Report

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