The online retail sector has taken off with companies like Amazon and Alibaba becoming household names, and a slew of conventional stores scrambling to bolster their online segment in response. The ProShares Online Retail ETF (ONLN) is the first ETF focused exclusively on retailers that principally sell online, and one that investors and industry experts are becoming increasingly interested in evaluating.
According to Proshares, “ONLN focuses on the largest players in the space—iconic companies like Amazon and Alibaba, whose rise is reshaping the retail world. The ProShares Online Retail ETF seeks investment results, before fees and expenses, that track the performance of the ProShares Online Retail Index.”
Appearing on CNBC’s ETF Edge on Monday, ProShares Global Investment Strategist Simeon Hyman explained what makes its ONLN ETF so unique.
Hyman said ONLN follows its Proshares Online Retail Index, which tracks online retailers.
“Scale matters… so it’s modified market cap weight. Amazon is 24%, Alibaba is 12%. And it really captures the market if you look at what happened year-to-date,” Hyman said. “So a pretty good environment. Consumer discretionary sector is up 27%. But if you look at the S&P Retail Select Index, it’s only up 6, because there are haves and have nots. The only retailers, Proshares Online Retail Index (ONLN) is up 27 percent. We also have a brick and mortar index to track the losers of the game, and they’re down 3%.”
While to some it may seem ponderous and lacking diversification, Hyman believes that having such a large proportion of the fund allocated with only a few stocks is actually a benefit, since the online space is currently dominated by a few key players.
“Number one, it’s winner take all in the online space,” he said. “Number two, it’s a lot more diversified than just buying Amazon. Chewy just got added after the IPO, so there are a lot of other names. But we do think it’s important to focus on the big folks.”
In conjunction with ONLN, Proshares also offers the ProShares Long Online/Short Stores ETF (CLIX), which seeks investment results, before fees and expenses, that correspond to the performance of the ProShares Long Online/Short Stores Index. CLIX addresses both the online and brick and mortar worlds, playing them off of one another.
As Proshares explains, “CLIX 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. Investors have the opportunity to benefit from both outperforming online and underperforming physical retailers. The long/short structure also reduces equity market exposure and potentially results in less volatility than long-only equity strategies.”
Despite the seeming prevalence of online buying, the ETF Trends CEO Tom Lydon points out that there is actually a huge unexplored space in online retail.
“When we were growing up we used to go to the mall,” Lydon said. “We don’t do that anymore. Everyday we have boxes showing up at our house. And if you want to get something, it’s so time efficient. But the crazy thing that I don’t believe is only 12% of retail buying in the U.S. is done online. We’ve got a huge amount of upside.”
Hyman clearly agrees.
“Tom hit it right.10% of sales are online U.S., about 12% globally, and lot of pain to be had on the brick and mortar side. We’re really in the early innings. The e-commerce report that came out just a month ago showed the 10% online U.S. share. It also showed that online retailers grew at five times the rate of brick and mortar. So even if we only get to 25 or 30% online retailers as a share overall, we’re only one-third of the way there. And guess what? Amazon is only one-third of the size of Walmart. So from our perspective, it’s in full swing, but in really early innings,” Hyman added.
Watch the full CNBC ETF Edge segment here:
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