Where to get returns on all that ho-ho-holiday shopping

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Scott McKenna of ETFLogic writes that the holiday season being officially upon us only means one thing: shopping!  

Despite many worrying about a potential economic recession and concerns over tariffs, the holiday shopping numbers are already off to a strong start this year. Between Black Friday and cyber Monday, it was estimated by the National Retail Federation that nearly 190 million consumers went shopping, up 14 per cent from last year. THE NRF also expects holiday sales to grow around 4 per cent in total for the whole season.

So how can investors cash in on holiday sales to boost their portfolios through December? The answer is retail ETFs. There are a number of ETFs which offer exposure to the retail industry, but there are really four names to offer full exposure: Amplify Online Retail ETF IBUY, ProShares Online Retail ETF ONLN, VanEck Vectors Retail ETF RTH,  SPDR S&P Retail ETF XRT, and Global X E-commerce ETF EBIZ. We put IBUY, ONLN, RTH, XRT and EBIZ under the lens to see which deserves to be on Santa’s nice and naughty lists. 

Based on a quick ticker comparison table from the ETFLogic insights platform, one of the biggest things that stands out right away between the ETFs are their geographic exposure. RTH and XRT are US only, so if you want to cash in on all of the international cheer you should go with IBUY, ONLN or EBIZ. But be ready to pay for that international exposure, as IBUYhas a 65bps fee while ONLN has a 58bps fee and EBIZ a 50bps fee.
Even though IBUY has a higher fee, it also has a five-star ETFLogic TruCost rating. The TruCost Score is a 5-star ranking of an ETF's liquidity versus trades of the same size for peer ETFs - we can see ONLN and EBIZ only have a four and a half star rating. 

This year’s online sales have reached all-time highs already this year with Cyber Monday shopping totalling USD9.4 billion, with a USD1.5 billion increase since last year. While RTH and XRT definitely offer exposure to retail companies with a strong online presence, we’re going to continue comparing online focused ETFs IBUY, ONLN, and EBIZ.

Here’s a look at the top 10 holdings to help determine which ETFs will give you the best online shopping exposure:

IBUY: Peloton 3.62 per cent, Land’s End 3.46 per cent, Carvana 2.96 per cent, GrubHub 2.95 per cent, Chegg 2.90 per cent, Copart 2.86 per cent, Uber 2.82 per cent, Lyft 2.79 per cent, Netflix 2.79 per cent, Paypal 2.76 per cent.

ONLN: Amazon 23.77 per cent, Alibaba 13.25 per cent, Chewy 4.73 per cent, Shutterstock 4.70 per cent, Stitch Fix 4.63 per cent, Groupon 4.57 per cent, Ebay 4.41 per cent, Etsy 4.36 per cent, Stamps.com 4.35 per cent, GrubHub 4.27 per cent.

EBIZ: NetEase 5.28 per cent, Vipshop Holdings 5.03 per cent, Shopify 4.89 per cent, Ocado Group 4.76 per cent, Alibaba Group 4.75 per cent, 58.com 4.41 per cent, Booking Holdings 4.36 per cent, JD.com 4.33 per cent, Costar Group 4.26 per cent, Just Eat 3.98 per cent.

Weights as of 12.9.2019

Just by comparing the top 10 holdings you can definitely see that IBUY has a much more diversified portfolio, while one third of ONLN is just made up of Amazon and Alibaba.  EBIZ also has an interesting mix of top holdings, which include more than a couple of Chinese related names.

Based on historical performance, EBIZ has outperformed IBUY by 95 bps over the past year and has significantly outperformed ONLN. Due to historical underperformance, we’ll disqualify ONLN.

With IBUY and EBIZ left, we’ll take a look at the overlap between the two ETFs. The two ETFs share 22 common constituents with a 34 per cent total overlap. Due to this relatively small amount of total overlap, we can assume that IBUY and EBIZ seem to be overall different in terms of the exposure they offer to the retail industry.

In conclusion, while there are a number of ETFS which offer exposure to the retail sector, IBUY and EBIZ seem to be the two best options to cash in on the growing trend of ecommerce and online sales this holiday shopping season and beyond.

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