Why This Is a Winning Retail ETF | ETF Trends

Being long online retail stocks is a winning strategy this year. In some cases, so is shorting traditional brick-and-mortar retailers. The ProShares Long Online/Short Stores ETF (NYSEArca: CLIX) does both and it’s paying off for investors.

CLIX tracks the ProShares Long Online/Short Stores Index, which combines two specialized retail indexes into one. It is 100% long the ProShares Online Retail Index, which includes retailers that primarily sell online or through other non-store channels, and 50% short the Solactive-ProShares Bricks and Mortar Retail Store Index that brings together traditional in-store retailers. So, the strategy benefits from the decreased foot traffic to traditional brick-and-mortar shops and from the increased reliance on online sales as more people shop at home.

CLIX is benefiting during the COVID-19 pandemic because online retail is thriving while many old guard retailers are being pushed to the brink.

“The first half of 2020 has seen another record round of bankruptcies, liquidations, and store closings, according to accounting firm BDO USA,” reports Teresa Rivas for Barron’s. “Eighteen retailers filed for chapter 11 bankruptcy in the first six months of the year, according to the firm, and that figure picked up in July and August, adding 11 more to the list. There have been more bankruptcies year to date than in all of 2019.”

The Call of the CLIX

Adding to the case for CLIX, some market observers believe changes in consumers’ behavior, which were apparent before the virus, are merely being hastened by the COVID-19 pandemic and that online is where it’s at for retailers – a theme that’s expected to be sticky for years to come. However, it’s clear e-commerce growth facilitated by the pandemic is growth that would have occurred anyway. The pandemic merely sped it along.

With a marked shift towards online retail, it will be survival of the fittest for retailers maintaining their brick-and-mortar presence. Demographics are also relevant to the long-term CLIX thesis.

“Not surprisingly, the pandemic has accelerated trends in retail, most notably the shift to e-commerce, that were already working against troubled firms such as J.C. Penney (JCPNQ) and Nieman Marcus,” according to Barron’s. “This year’s bankruptcy filings have largely come from footwear and apparel stores, highlighting the fact that consumers have largely eschewed these categories as they tighten their belts and spend more time at home.”

CLIX is up almost 72% year-to-date.

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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.