For this episode of “ETF 360,” VettaFi’s head of research, Todd Rosenbluth, spoke with Simeon Hyman, CFA, global investment strategist and head of Investment Strategy Group at ProShares, about the ProShares Online Retail ETF (ONLN).
Pre-pandemic sales via e-commerce were only 12% of all retail sales in the U.S., a number that grew during the pandemic to 17% and has since retreated to 14%. The percent of e-commerce market share is exhibiting continued growth along its trend of about 1% a year pre-pandemic, however, and 14% sits in alignment with this growth trend.
“Even if retail sales are flat, you’re talking about a 30-40 percent increase in e-commerce sales over the next four or five years,” Hyman explained.
The precedent has long been set in attempting to capture consumer interest through special sales days, such as the Nordstrom anniversary sale, the Macy’s one-day sale, and Amazon Prime days continue this trend in the online space, but it isn’t so much about sales as it is driving customer growth.
“If we think about Prime day in the context of Amazon’s business, they did about $11 billion last year; that equates to, and even if you back out cloud, that equates to maybe 10-12 average sales days for Amazon,” Hyman explained. “Certainly as an indicator, as a marketing activity to get new Prime users, it’s important, but balanced in its importance.”
Amazon competes globally with the likes of Chinese giant Alibaba, Singapore-based Sea Limited, and South and Central America’s MercadoLibre. All these companies are carried within the ProShares Online Retail ETF (ONLN), which has a global portfolio of 25% ex-U.S. companies and 75% U.S. companies, all of which must have $500 million in market cap.
The index is market-cap weighted, and individual securities are capped at 25%.
“If there’s any business where scale matters, it’s online retail, so you’ve got to acknowledge that the bigger you are and the bigger your market cap, you should have a bigger piece of the portfolio,” Hyman said.
ONLN can slot into portfolios in a number of ways, but two primary uses are as a thematic satellite or as the consumer discretionary sector representative sleeve for a portfolio. Access to this particular space is particularly appealing now, given the discounts that e-commerce securities and the fund are trading at.
“Right now, you’re talking about a substantial discount,” Hyman explained. “ONLN is trading at just 40% of the price-to-book of the consumer discretionary sector.”
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