The e-commerce industry, which has been strengthening for several years, can serve as a multi-sector play on strong consumer spending combined with rapid technology growth.
E-commerce has grown steadily in the mid-teen percentage range since 2010, but the COVID-19 pandemic pulled forward e-commerce growth to the high 30% range throughout the end of 2020, according to Roxanna Islam, associate director of research at Alerian.
Now with year-over-year growth averaging about 6.6% in 3Q21, the growth rate has diminished and seems somewhat less exciting at first glance; however, e-commerce sales continue to show positive growth at a more sustainable level than previous years despite tough comps in 2020 and 2021, according to Islam.
E-commerce sales also remain a high portion of overall retail sales at levels above 13% since 3Q20, compared to 11% pre-pandemic, Islam said.
Several changes in habits have contributed to the strength in e-commerce and have positioned the industry for continued growth.
E-commerce has been excelling alongside the growth of mobile and internet usage. Global cellular coverage is still extremely limited and only reaches approximately 15% of the world, according to Iridium; as cellular coverage expands with the help of 5G and commercial satellites, access to online purchases and e-commerce is likely to also increase.
Supply chain issues have created fears of shortages — particularly with food, beverages, and other grocery essentials. In addition to movement into the suburbs and spending more time at home, new habits have led to an increase in bulk buying, which may be cheaper and easier to order online, according to Islam.
With the increase of remote work and less consumers making an afternoon commute, consumers may find it easier to order online, especially given same-day, one-day, or two-day shipping times.
The S-Network Global E-Commerce Index (ECOMX) captures e-commerce growth and future trends in consumer retail. The index is constructed to represent the breadth of the e-commerce space and includes 60 equal-weighted constituents allocated evenly across each of its four main business segments — online marketplaces, online retailers, content navigation, and e-commerce infrastructure, according to Islam.
With the majority of online marketplaces and online retailers considered consumer discretionary stocks, this sector’s weighting in the ECOMX Index is currently about 40%. The index is further differentiated from other consumer retail indexes, which typically hold 100% weighting toward consumer discretionary and staples, by a large weighting to tech and industrial-focused sectors.
The heavier allocation to tech-oriented sectors gives the index a higher risk/reward potential compared to pure-play consumer retail indexes. Its tilt toward higher growth tech-driven stocks may be able to provide higher reward in exchange for higher risk when compared to traditional retail peers, according to Islam.
Investors can gain exposure to the ECOMX index with the First Trust S-Network Global E-Commerce ETF (ISHP).
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