Exchange traded fund investors who are seeking to enhance their portfolios should consider opportunities in e-commerce.
In the recent webcast, Sectors Disrupted: Breaking E-commerce Out of the Box, Troy Goldstein, Executive Director, Head of National Accounts, ProShares, noted that so far this year, we’ve seen the Nasdaq-100 lag other broad market U.S. indices while mid- and small-caps have strongly rallied on the back of supportive stimulus and optimism for an economic recovery. Additionally, as we look across market caps in the U.S., there’s been a noticeable contrast between value and growth performance.
Simeon Hyman, Head of Investment Strategy, Global Investment Strategist, ProShares, also added that all current economic signals point to good health, pointing to strong ISM Manufacturing and ISM Services numbers, along with improving nonfarm payrolls in the labor market. Meanwhile, consumer confidence has been increasing and retail sales are rebounding.
Looking at the equity markets, Hyman argued that the low interest rates historically have supported higher valuations.
“Stocks, based upon 2020 earnings estimates, appear to be expensive. However, based upon 2021 earnings estimates, they’re not,” Hyman said.
“While the S&P 500 may be reasonably valued, this may not be the case for all market segments. In particular, the S&P 500 Growth Index nearly doubled the return of the S&P 500 in 2020. Even for investors who are not concerned with growth valuations, a rebalancing may be called for. The standard approach following a run of growth stocks such as this is to rebalance toward value stocks,” he added.
Scott Helfstein, Executive Director, Thematic Investing, ProShares, helped unpacked sector investing, notably the consumer discretionary sector, with a focus on the access it provides to e-commerce. E-commerce has enjoyed phenomenal growth. The e-commerce global online retail market was $4.28 trillion as of 2020, compared to the $4.38 trillion global life and health insurance market and $3.12 trillion global car and automobile sales.
The outsized growth of online retail was the big story in 2020. Helfstein also highlighted that in every second, there are 8,500 visits to e-commerce sites globally.
“The COVID-19 pandemic presented a unique challenge for Consumer Discretionary investors. People were not traveling, many bricks-and-mortar stores were closed, and big auto purchases seemed less of a priority in a tight job market,” Helfstein said.
“These dynamics put a spotlight on a discrepancy between different components within the Consumer Discretionary sector that had been years in the making. Since the end of 2010, the Internet Retail component of Consumer Discretionary pulled away from the rest of the sector with regard to sales and profitability. Sales grew almost eight times faster than that of the next fastest growing discretionary segment, S&P 500 Household Durables,” he added.
Investors can capture the increased popularity of e-commerce and the decline of traditional brick-and-mortar shops through ETFs. The ProShares Decline of the Retail Store ETF (NYSEArca: EMTY) and ProShares Long Online/Short Stores ETF (NYSEArca: CLIX) both take a short position in brick-and-mortar retail stores to capitalize on weakness in traditional stores. Meanwhile, the ProShares Online Retail ETF (NYSEArca: ONLN) takes on a long position in online retailers.
“Analysts expect the growth of online retail to continue. 14% of U.S. retail sales today are made online – as of Q4, 2020, according to the U.S. Department of Commerce – leaving tremendous room for growth,” Hyman said.
The ProShares Online Retail ETF tries to reflect the performance of the ProShares Online Retail Index, which includes companies that principally sell online or through other non-store channels, such as mobile or app purchases, rather than through brick-and-mortar store locations. Component holdings must be classified as an online retailer, an eCommerce retailer, or an internet or direct marketing retailer, according to standard industry classification systems.
The Decline of the Retail Store ETF provides daily short exposure or -1x to the Solactive-ProShares Bricks and Mortar Retail Store Index, which is comprised of traditional retailers and equally weights components. The fund holds companies that include department stores, supermarkets, and sellers of apparel, consumer electronics, and home improvement items.
Lastly, the Long Online/Short Stores ETF is a type of long-short strategy and the first ETF to track the potential growth of online companies while benefiting from the decline of brick-and-mortar retailers. Specifically, CLIX reflects the ProShares Long Online/Short Stores Index, which combines a 100% long portfolio of online and non-traditional retailers with a 50% short position in bricks and mortar retailers.
Financial advisors who are interested in learning more about the e-commerce market can watch the webcast here on demand.