Halloween is in the books and Thanksgiving is just a couple of weeks away, so investors should prepare for an onslaught of holiday shopping-related data, estimates and forecasts.
For October, the University of Michigan consumer sentiment reading checked in at 98.6, slightly below the forecast of 99, but that is still in strong territory. This year, that gauge has been residing at its highest levels since 2000.
Investors looking to profit from holiday shopping trends should look beyond traditional brick-and-mortar retailers as data suggest another brisk holiday season for online retailers.
“Based on Adobe Analytics data, Adobe predicts that U.S. online sales will increase 14.8 percent, totaling $124.1 billion, while offline retail spending is expected to increase a modest 2.7 percent,” according to Adobe. “Cyber Monday will set a new record as the largest- and fastest-growing online shopping day of the year with $7.7 billion in sales, a 17.6 percent increase year over year (YoY).”
A growing number of exchange-traded funds (ETFs) reflect the changing retail landscape, potentially positioning investors for a profitable holiday season. Here are some of the best ETFs to consider for the 2018 holiday shopping season.
Amplify Online Retail ETF (IBUY)
Expense Ratio: 0.65%, or $65 annually per $10,000 invested
The Amplify Online Retail ETF (NASDAQ:IBUY) is one of the best ETFs to consider at this time of year because, as its name implies, it is dedicated to e-commerce and online retail themes. IBUY, which is over two and a half years old, tracks the EQM Online Retail Index. That index requires member firms to derive at least 70% of their sales online.
While IBUY is the dominant name among online retail ETFs and home to a slew of familiar e-commerce companies, the fund is not dominated by Amazon (NASDAQ:AMZN). Amazon, the largest e-commerce company, is not even one of IBUY’s top 10 holdings, but the stock accounts for 3.58% of IBUY’s roster. Data confirm IBUY could be one of the best ETFs with which to play holiday shopping trends.
“According to the National Retail Federation (NRF) 2018 holiday retail sales are expected to hit a new all-time high, eclipsing 2017’s record by an estimated 4.3 — 4.8%,” according to Amplify ETFs.
ProShares Online Retail ETF (ONLN)
Expense Ratio: 0.58%
The ProShares Online Retail ETF (NYSEARCA:ONLN) is one of the most direct competitors to the aforementioned IBUY. Much of that competition is derived from ONLN having a slightly lower fee than the rival IBUY, an important consideration for long-term investors looking for the best ETFs with which to play the online shopping boom.
“ONLN’s strategy pinpoints retailers that principally sell online or through other non-store channels, such as mobile or app purchases, and separates them from those reliant on bricks-and-mortar stores,” according to Maryland-based ProShares.
While ONLN holds just 21 stocks, the fund offers some geographic diversity compared to the other some of the other best ETFs in the retail category, as it features some ex-U.S. companies. Three Chinese companies, including Alibaba (NYSE:BABA), are found on ONLN’s roster. When ONLN debuted in July, Amazon and Alibaba combined for about 40% of the fund’s weight.
ALPS Disruptive Technologies ETF (DTEC)
Expense Ratio: 0.5%
DTEC’s utility as one of the best ETFs for the holiday’s comes via the fund’s exposure to mobile payments companies. While the mobile payments industry is experiencing exponential growth, there still are not many ETFs with significant exposure to that theme. Mobile payments is one of the 10 disruptive, equally-weighted themes featured in DTEC.
“Smartphones are predicted to drive 35% of all purchases on Thanksgiving, according to a holiday forecast by Adobe Analytics. That’s compared with only a 30% share on Black Friday and 25% on Cyber Monday,” reports Business Insider.
VanEck Vectors Retail ETF (RTH)
Expense Ratio: 0.35%
The VanEck Vectors Retail ETF (NYSEARCA:RTH) does not have the internet/tech feel that the other funds mentioned here have, but this is one of the best ETFs for investors looking for a fund proxy on Amazon. Shares of Amazon account for over 20% of RTH’s weight. Dow components Home Depot (NYSE:HD) and Walmart (NYSE:WMT) combine for nearly 20% of RTH’s weight.
RTH is also one of the best ETFs for investors looking for multiple sector plays on the retail space. While consumer discretionary names represent nearly two-thirds of RTH’s weight, the fund also features solid exposure to consumer staples and healthcare stocks.
Companies in RTH’s underlying index are “involved in retail distribution, wholesalers, on-line, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers,” according to the issuer.
Invesco Dynamic Retail ETF (PMR)
Expense Ratio: 0.63%
The Invesco Dynamic Retail ETF (NYSEARCA:PMR) is one of the best ETFs for investors seeking a unique weighting methodology applied to retail stocks. PMR, an oft-overlooked name among retail funds, tracks the Dynamic Retail Intellidex Index.
That benchmark “thoroughly evaluates companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value,” according to Invesco.
PMR holds just 30 stocks, in terms of diversification across large-, mid- and small-cap names, this is one of the best ETFs in the retail space. PMR is also one of the best ETFs for investors looking for value names, as value stocks across the three market cap segments represent about 44% of the fund’s weight.
ProShares Long Online/Short Stores ETF (CLIX)
Expense Ratio: 0.65%
The ProShares Long Online/Short Stores ETF (NYSEARCA:CLIX) employs the long/short strategy that is frequently the territory of professional investors, but with CLIX, investors can use that strategy on their own.
Although it’s a new ETF (it is about a year old), CLIX is one of the best ETFs because it exposes investors to two prominent retail trends: the rise of e-commerce and the decline of traditional brick-and-mortar retailers.
“Physical retailers are under immense pressure. Sales have been declining and profit margins are approaching lows not seen since the recession. Over 30 major retailers have declared bankruptcy in the past three years, and longstanding names like J.C. Penney and Macy’s are struggling to remain viable,” according to ProShares.
Long holdings in CLIX include familiar fare, such as Amazon, Alibaba and eBay (NASDAQ:EBAY).
SPDR S&P Retail ETF (XRT)
Expense Ratio: 0.35%
The SPDR S&P Retail ETF (NYSEARCA:XRT) is one of the best ETFs for investors that are willing to wager on a rebound for brick-and-mortar retail names, but that bet comes with some risk. That much was seen in 2017 when, amid a slew of struggles for traditional retailers, XRT gained just 4.2% compared to over 50% for the e-commerce-focused IBUY.
The equal-weight XRT does devote almost 18% of its weight to online retailers, but in an environment that favors the intersection of retail and technology, that may not be enough to elevate XRT to the pantheon of the best ETFs for retail exposure over the long-term. Year-to-date, XRT is in the green, but trailing IBUY by nearly 300 basis points.
XRT features exposure to the following industries: Apparel Retail, Automotive Retail, Computer & Electronic Retail, Department Stores, Drug Retail, Food Retailers, General Merchandise Stores, Hypermarkets & Super Centers, Internet & Direct Marketing Retail and Specialty Stores, according to the fund’s issuer.
Todd Shriber does not own any of the aforementioned securities.