Many traditional retailers remain under pressure due to immense competitive threats from Amazon.com Inc. (NASDAQ: AMZN) and other e-commerce firms, but some brick-and-mortar retailers are better-positioned than their rivals to endure the shift to online shopping.
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.
Investors considering other retail exchange traded funds, may want to look at the VanEckVectors Retail ETF (NYSEARCA: RTH). An obvious advantage of RTH is its 18.6% weight to Amazon, which has helped the fund perform admirably this year.
“The secular trends affecting retail – changing shopping habits, the rise of online and discount models – have been well documented and now the market is focused on how retailers manage those changes, and who wins and who loses,” said David Silverman, senior director at Fitch Ratings, in a recent note. “The gulf between the winners and the market share donors is poised to grow as competition heats up.”
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Making matters worse are the struggles of some big-name brick-and-mortar retailers, including Sears Holding (NASDAQ: SHLD), which some retail sector observers fear is on the brink of collapse. A similar sentiment has recently been applied to J.C. Penney (NYSE: JCP). Those scenarios are proof that investors need to be selective with retail ETFs. For its part, RTH is home to some of the retailers that are delivering for investors this year.
“The retailers best positioned to maintain or grow their market share are those with sufficient scale, cash flow generation and financial flexibility to invest in its business, an effective operating strategy and a right-sized physical footprint for its category. A well-developed omni-channel model is key in the quest for market share and Fitch believes Nordstrom, Macy’s and Walmart are amongst the furthest along in their omni-channel model development,” according to Fitch Ratings.
Wal-Mart Stores (NYSE:WMT), one of the best-performing members of the Dow Jones Industrial Average this year, is RTH’s third-largest holding at a weight of 6.7%. Home Depot Inc. (NYSE:HD), another Dow stalwart, is RTH’s second-largest holding at 7.6%.
For more information on the consumer sector, visit our consumer discretionary category.