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Big Differences In Retail ETFs

Cinthia Murphy

As we wrap up a two-day shopping spree called Amazon Prime Day(s), all eyes are on Amazon stock prices, now up 33% in 2019, nearing one-year highs.

The big sales event at Amazon came in the same week another strong round of retail sales numbers hit the market, showing that consumers are spending their discretionary money. And consumer spending is a key driver of economic growth.

Accessing Amazon—and more broadly, the retail segment—is easy through ETFs. But choices in this segment are delivering very different results.

There are 223 ETFs today that own Amazon stock to varying degrees. From consumer discretionary funds to retail ETFs to trend-following and even a covered-call strategy, there are plenty of vehicles offering a slice of Amazon action.

 

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

 

In our ETF Stock Finder tool, by entering the company’s ticker symbol “AMZN” in the search bar, you will quickly find a comprehensive list of ETFs that own Amazon, led by the Fidelity MSCI Consumer Discretionary Index ETF (FDIS).

Biggest ETF Holder Of Amazon

FDIS currently has the biggest allocation to Amazon of any ETF in the market—Amazon represents 26% of the FDIS portfolio. That means price movements in Amazon stock have a big impact on this ETF’s overall returns. At a 26% weighting, Amazon is a major driver of performance in FDIS.

Among retail-focused ETFs, there are big allocation differences to Amazon—and other retailers—that have led to disparity in performance.

Consider the two popular retail ETFs: the SPDR S&P Retail ETF (XRT) and the VanEck Vectors Retail ETF (RTH). RTH allocates 20% of its portfolio to Amazon. XRT allocates only 1.3% to the company.

That big difference in allocation is linked to methodology. Both funds look to capture the U.S. retail segment, but RTH is a market-cap-weighted portfolio. The 25 largest U.S.-listed retail names—the biggest retail companies—have the most presence in this portfolio. XRT, on the other hand, tracks an equal-weighted index of retail stocks, diluting any single-stock impact on overall returns.

 

 

In a year when Amazon is up 33%, that strong performance is captured more prominently in RTH than in XRT. The chart below shows that RTH has now delivered about 4x the returns of XRT this year:

 

Online ETF Route To Amazon

In the retail segment, there are other ways to tap in to Amazon’s price movement, and that is through online retail funds.

In this subsegment of retail, too, allocations to Amazon vary significantly, as do these ETFs’ performance.

Consider three online retail ETFs for example: the ProShares Online Retail ETF (ONLN), the Global X E-commerce ETF (EBIZ) and the Amplify Online Retail ETF (IBUY).

ONLN has the biggest allocation to Amazon, at 24.7%. Nearly a quarter of the portfolio is tied exclusively to Amazon price movements. EBIZ allocates only 4% to Amazon, and IBUY even less, at 3.5%.

Two things are interesting about these ETFs’ performance year to date. First, online retail portfolios are outperforming the brick-and-mortar-focused retail ETFs such as XRT and RTH.

Secondly, it’s EBIZ that’s outperforming most among these three online retails despite its relatively small allocation to Amazon.

 

Charts courtesy of StockCharts.com

 

EBIZ isn’t solely a retail ETF. The global-in-scope fund focuses on the growing role of e-commerce in retail, so it owns not only retailers but online platforms and software companies involved in e-commerce. Internet services is EBIZ’s biggest sector allocation, at about 46% of the portfolio. Software companies are among the best performing of the year.

The largest holding in EBIZ, Shopify, is up a whopping 140% year to date. MercadoLibre, the second-largest holding, is up 117%. The list goes on. Amazon’s 33% gain is impressive, but it’s small fish in EBIZ’s pond of big winners this year.

 

 

ONLN and IBUY are more similar in terms of exposure (underlying holdings) and focus, the main difference between the two being their weighting scheme: modified market cap versus equal weight.

There’s far more concentration in the top 10 holdings in ONLN—72% of the portfolio is in 10 stocks—versus IBUY, where the top 10 represent only 37% of the mix.

This difference has driven the different results seen year to date in overall performance even though these ETFs own a lot of the same companies.

 

 

All of this goes to show that, first, you can easily access Amazon in an ETF wrapper. Choices abound.

And there’s no such thing as one-size-fits-all ETF access. As an investor, you can express all sorts of views on Amazon, from how bullish (or not) you feel about that stock, to how much exposure to it you want relative to your broader portfolio, to even whether you want to own it in your consumer discretionary sleeve, or more granularly in your retail allocation.

Owning Amazon in an ETF is easy. Choosing the right ETF for your goal, however, requires a little leg work.

Contact Cinthia Murphy at cmurphy@etf.com

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