7 Specialty Retail ETFs to Buy the Industry’s Disruption

When considering retail ETFs, it's best to look to the industry's future, not its past

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For years, the universe of retail exchange-traded funds (ETFs) was dominated by prosaic offerings, namely the SPDR S&P Retail ETF (NYSEARCA:XRT). The equal-weight XRT is nearly 13 years old, cementing its status as one of the godfathers of the retail ETF space.

This retail ETF “seeks to provide exposure the retail segment of the S&P TMI, which comprises the following sub-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 State Street.

Thing is the retail space, like so many other once traditional segments, is being disrupted and retail ETFs are starting to reflect that disruption. That disruption is coming at XRT’s expense. Today, the retail ETF has just over $326 million in assets under management following year-to-date outflows of more than $224 million.

Underscoring the point that investors are looking for something different with retail ETFs is this data point: in three of the four years ending 2018, XRT suffered annual outflows.

For investors looking to be on the specialty, disruptive side of the retail ETF space, here are some funds to consider.

Amplify Online Retail ETF (IBUY)

Expense ratio: 0.65% per year, or $65 on a $10,000 investment

The Amplify Online Retail ETF (NASDAQ:IBUY) debuted in April 2016 as one of the first retail ETFs dedicated to where retail sales growth is expected to come from in the years ahead: e-commerce and online venues. IBUY tracks the EQM Online Retail Index, which mandates that member firms derive at least 70% of their sales from online or virtual venues.

As highlighted by its more than $281 million in assets under management, IBUY is more than a credible competitive threat to traditional retail ETFs. More importantly than IBUY’s size, is its performance, which not only justifies its above-average fee, but cements its status as a real threat to old guard retail ETFs.

Since coming to market, IBUY is up 96.50% compared to a gain of just 2.10% for XRT over that period. Impressively, IBUY’s dominant performance has been accrued without excessive weights to Amazon (NASDAQ:AMZN). Shares of the largest e-commerce company currently are not even a top 10 holding in IBUY.

ProShares Long Online/Short Stores ETF (CLIX)

Expense ratio: 0.65% per year, or $65 on a $10,000 investment

The ProShares Long Online/Short Stores ETF (NYSEARCA:CLIX) takes a specialized approach to retail stocks, offering investors long exposure to Internet retailers with short exposure to retailers that are still dependent on physical stores for the bulk of their sales.

“CLIX combines a 100% long position in retailers that primarily sell online or through other non-store channels with a 50% short position in those that rely principally on physical stores,” according to ProShares.

Remembering that physical stores are being shuttered that a rapid rate and that online sales represent just 10% of overall retail sales, the long-term case for this retail ETF is sound. Plus, growth of online sales is expected to outpace brick-and-mortar retail sales growth by a 3-to-1 margin as soon as next year.

CLIX is reflecting those expectations. After hitting an all-time high last Friday, the retail ETF is up nearly 25% this year.

ProShares Pet Care ETF (PAWZ)

Expense ratio: 0.50% per year, or $50 on a $10,000 investment

The ProShares Pet Care ETF (CBOE:PAWZ) debuted last November as the first ETF dedicated to the pet care industry. While PAWZ is not a dedicated retail ETF, pet owners know that there are financial commitments that come along with being a good pet owner. Those commitments mean opportunity in the investment world.

“The pet care industry could reach $203 billion in global sales by 2025. It has grown steadily every year since 2001, even during the Great Recession,” according to ProShares.

Veterinary pharmaceuticals makers and pet supply stores combine for almost 40% of the 24 stocks found in PAWZ. The fund is up 8.22% year-to-date and if it can convincingly take out the $41 area, upside from there is potentially significant.

Global X MSCI China Consumer Discretionary ETF (CHIQ)

Expense ratio: 0.65% per year, or $65 on a $10,000 investment

When considering retail ETFs, investors should remember there are important opportunities outside the U.S. and many of those opportunities can be found in China, the world’s second-largest economy. The Global X MSCI China Consumer Discretionary ETF (NASDAQ:CHIQ) is a direct route to the Chinese consumer and that country’s booming online retail market.

Many of the 49 stocks residing in CHIQ are familiar to U.S. investors because those companies have listings in New York. That group includes Alibaba (NYSE:BABA) and JD.com Inc. (NASDAQ:JD), among others. Despite the trade tensions with the U.S., Chinese stocks are performing well this and CHIQ is participating in that theme. This retail ETF is up 23.59% year-to-date, slightly more than double the gains of the largest U.S. consumer discretionary ETF.

“China’s government also implemented tax reforms to encourage greater consumption, supporting the Consumer Discretionary sector,” according to Global X research.

First Trust Nasdaq Retail ETF (FTXD)

Expense ratio: 0.60% per year, or $60 on a $10,000 investment

The First Trust Nasdaq Retail ETF (NASDAQ:FTXD) uses a unique weighting methodology that is not found on other retail ETFs. This retail ETF, which turns three years old in September, employs growth, value and volatility factors in its stock selection and member firms are ranked based on their scores across those factors.

While FTXD’s weighting scheme is not traditional, its overall approach to retail is. This retail ETF allocates 32.75% of its weight to specialty retailers and 20% of its weight to broadline retailers. Food and apparel retailers combine for about a third of the fund’s weight.

In other words, many of FTXD’s 50 holdings are brick-and-mortar retailers. While there are some online retailers in this fund, weights to those stocks are dwarfed by FTXD’s exposure to old school retail fare. This year, the aforementioned IBUY is beating FTXD by a margin of 6-to-1.

Amplify International Online Retail ETF (XBUY)

Expense ratio: 0.69% per year, or $69 on a $10,000 investment

Having debuted in late January, the Amplify International Online Retail ETF (NASDAQ:XBUY) is one of the newest retail ETFs on the market and is also the international counterpart to the domestically focused IBUY.

XBUY follows the EQM International Ecommerce Index, which has even more stringent requirements than IBUY’s underlying index. XBUY’s index “eeks to measure the performance of equity securities issued by non-U.S. companies that derive at least 90% of their revenue from online business transactions or e-commerce platforms,” according to Amplify.

XBUY provides exposure to 12 countries, eight of which are developed markets. The retail ETF’s geographic exposure tilts heavily toward the Asia-Pacific region as China and Japan combine for half the fund’s geographic weight.

VanEck Vectors Retail ETF (RTH)

Expense ratio: 0.35% per year, or $35 on a $10,000 investment

If Amazon’s price tag of more than $1,700 is off-putting or hard to reach for many investors, the VanEck Vectors Retail ETF (NYSEARCA:RTH) is a great way for capital-starved investors to get Amazon exposure. This retail ETF had an Amazon weight of 19.28% at the end of February, one of the largest weights to the e-commerce giant among all ETFs.

Most of RTH’s other 24 holdings get the bulk of their sales from traditional stores, but RTH allocates 9.81% of its weight to Walmart Inc. (NYSE:WMT), a company that is willing to compete with Amazon in the online retail space. China’s JD.com is 2.75% of this retail ETF’s weight.

Up 14% year-to-date, Amazon is helping RTH to a 2019 gain of 8.27%. In other words, RTH is highly correlated to Amazon.

As of this writing, Todd Shriber does not own any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/03/go-shopping-specialty-retail-etfs/.

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