Recent data and commentary suggest the holiday shopping season was a boon for online retailers, but the same cannot be said of traditional brick-and-mortar names, particularly department stores. Said another way, investors looking for consumer discretionary or retail exposure via exchange traded funds should consider refining that exposure.
The trend away from traditional department stores and apparel retailers to online shopping destinations should benefit the Amplify Online Retail ETF (NasdaqGM: IBUY), which debuted last year. IBUY, which is comprised of global companies that generate at least 70% of revenue from online or virtual sales, has been one of the best-performing retail ETFs since its inception.
Consumers seem to be more willing to open up their wallets. According to the New York-based Conference Board, consumer confidence jumped in December to the highest level since August 2001 as more were upbeat about the outlook than at any time since the last 13 years, reports Michelle Jamrisko for Bloomberg.
Since coming to market, IBUY has offered better than double the returns of the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), the largest consumer discretionary ETF. IBUY has also easily topped traditional retail ETFs since its debut. For example, the SPDR S&P Retail ETF (NYSEArca: XRT), the largest dedicated retail ETF, is off more than 4% since IBUY debuted.
“According to Adobe Digital Insights, which aggregates data from 24.6 billion visits to the top 100 websites, the 2016 holiday season generated $91.7 billion in online sales, representing an 11% increase over last year,” according to a Seeking Alpha analysis of IBUY. “E-commerce sales as a percentage of total retail sales has been steady climbing, and now represents 8.4% of total retail sales. But if you think about it, that is still a relatively low percentage. There is still huge potential for growth!”
Last year, the internet retail sub-industry revealed the highest earnings growth at 143.1% for all 13 retail sub-industries, according to FactSet. In contrast, the department store sub-industry reported the largest year-over-year drop in earnings of all 13 retail sub-industries at -47.8%.
IBUY provides exposure to many familiar online names, such as WayFair Inc (NYSE: W), Etsy (NasdaqGS: ETSY), FTD Companies (NasdaqGS: FTD), Overstock Com Inc (NasdaqGS: OSTK) and Priceline (NasdaqGS: PCLN).
“In the battle between bricks and clicks, the clicks are clearly winning. Online commerce is not a “fad” but a nascent trend with legs for years to come. So investors in traditional retail ETFs, may want to reevaluate their exposure and consider an allocation to online retail to capture positive consumer spending trends, because that is where the future growth is. In increasing numbers, consumer dollars are not going to the mall, they are being spent online,” according to Seeking Alpha.
For more information on the retail sector, visit our retail category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.