Investors shouldn’t treat online retail as a relic of the coronavirus pandemic. The industry is still growing, and that growth outlook is compelling.
Likewise, market participants should also be cautious regarding the rebound experienced by brick-and-mortar stores. Among exchange traded funds, the Invesco NASDAW Internet ETF (PNQI) is an idea with which to marry these concepts.
PNQI, which tracks the Nasdaq CTA Internet Index, isn’t a dedicated retail ETF, but plenty of its 83 member firms are among the dominant or fast-growing names in internet retail. That exposure remains relevant today because store closures — an issue that appeared prior to the coronavirus pandemic — are being highlighted by some analysts.
For example, UBS recently said that 40,000 to 50,000 retail stores will close over the next five years. That’s down from a prior projection of 80,000 closures, but even at 45,000 — the midpoint of the aforementioned range — that’s not exactly a ringing endorsement of land-based retail. It does, however, underscore the rise of online retail.
“The worst outlook landed on clothing and accessories retailers, home furnishing companies and consumer electronic retailers. UBS is projecting those three retail categories will see 23,500 closures in the next five years,” reports the Real Deal.
Specific to PNQI, the point about apparel retailers is relevant because Amazon (NASDAQ:AMZN) is the largest apparel retailer in the U.S., and that stock is the ETF’s second-largest holding at a weight of 8.54%. Several other PNQI components also have apparel exposure.
While the aforementioned UBS is better than the bank’s prior one, other anecdotal evidence supports the notion that the growth for retailers is online.
“Meanwhile, Unibail-Rodamco-Westfield is shedding its portfolio of malls in Southern California, along with the rest of its U.S. assets, as it narrows its focus to Europe. The market was Westfeld’s largest, comprising 10 malls from Los Angeles to San Diego that combine for about 12 million square feet of retail space,” according to the Real Deal.
An interesting element in the PNQI equation is that the ETF isn’t heavily reliant on direct retailers, but it does have exposure to platform providers, such as Shopify (NYSE:SHOP), as well as the emerging social commerce trend. Regarding the latter point, Meta Platforms (NASDAQ:FB), Snap (NYSE:SNAP), and Twitter (NYSE:TWTR) combine for about 12% of PNQI’s weight.
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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.