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New ProShares Retail ETFs to Bet on Store to Online Shift

Mutual Fund Report for TRMCX

With a digital transformation in shopping, bricks-and-mortar retailers are struggling. Feeble sales are forcing them to shut stores or file for bankruptcy, while e-commerce retailers are making hay.

In order to capitalize on this trend, ProShares has launched two retail disruption ETFs, namely ProShares Decline of the Retail Store ETF EMTY and ProShares Long Online/Short Stores ETF CLIX, designed to benefit from the move toward online shopping and shift from physical retail stores. Here’s an insight into these newly created ETFs:

EMTY in Focus

This fund seeks capital appreciation from the decline of bricks and mortar retailers through short (inverse) exposure to the Solactive-ProShares Bricks and Mortar Retail Store Index, which consists of retailers that rely principally on revenues from physical stores. The index holds a well-diversified basket of 56 stocks, with none accounting for more than 1.79% of assets. From an industrial exposure, apparels takes the largest share at 28.6% followed by department stores at 10.7% (read: Online vs. Offline Retail: Recent ETF Winners).

The new fund comes with an expense ratio of 0.65%.
CLIX in Focus

This fund seeks to benefit from both outperforming online and underperforming physical retailers through long/short strategy. It combines the 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 by tracking the performance of the ProShares Long Online/Short Stores Index.  

The approach reduces equity market exposure and results in less volatility than long-only equity strategies. The ETF charges 65 bps in annual fees from investors.

How do they fit in today’s portfolio?

The ETFs could intrigue investors seeking to benefit from the changing retail landscape from physical stores to online. This is especially true given that bricks-and-mortar retailers are seeing a decline in revenue and profit margins to levels not seen since recession. Over 30 major retailers have declared bankruptcy in the past three years and more than 8,600 retail stores could close this year in the United States. Additionally, major players like J.C. Penney JCP and Macy’s M are struggling to remain viable.

On the other hand, e-commerce has been rising rapidly on shoppers’ online binge. eMarketer estimates that U.S. retail ecommerce sales will grow 15.8% in 2017 to reach $452.76 billion, making up 9.0% of total retail sales. Another firm Forrester projects U.S. online sales to grow 13% year over year in 2017, which is five times faster than the projected offline sales growth, and in line with the National Retail Federation’s estimates. It expects online sales to account for 17% of all U.S. retail sales by 2022, up from the projected 12.7% for 2017. Amazon is expected to be a major driver of online sales, followed by eBay EBAY and Walmart WMT (read: Amazon ETFs to Buy on Q3 Blowout Results).

Currently, the retail sector is piping hot and gaining momentum on a string of better-than-expected results. The holiday fervor is an add-on.

ETF Competition

There is increased appetite for niche funds due to the lack of real competitors to the unique products. However, Amplify Online Retail ETF IBUY, which offers a long position to the online retail space, could give tough competition to CLIX. IBUY has accumulated $132.9 million in AUM and charges 65 bps in annual fees. It has gained about 37% year to date.

A handful of other retail ETFs — SPDR S&P Retail ETF XRT, VanEck Vectors Retail ETF RTH, PowerShares Dynamic Retail Portfolio PMR and First Trust Nasdaq Retail ETF FTXD — seek to offer exposure to both the physical stores and online retail space (see: all the Consumer Discretionary ETFs here).

Bottom Line

It will not be difficult for the new ETFs to garner sufficient investor interest in changing the retail landscape and generate decent total returns net of expense ratio. Investors as it is are looking for exposure to this underserved corner of the retail space.

Further, the new products would definitely get the first-mover advantage, as the duo is the first set of ETFs targeting a decline in bricks-and-mortar stocks and surge in e-commerce retail space.

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eBay Inc. (EBAY) : Free Stock Analysis Report
VANECK-RETAIL (RTH): ETF Research Reports
SPDR-SP RET ETF (XRT): ETF Research Reports
FT-NDQ RETAIL (FTXD): ETF Research Reports
AMPL-ONLN RETL (IBUY): ETF Research Reports
PWRSH-DYN RETL (PMR): ETF Research Reports
Wal-Mart Stores, Inc. (WMT) : Free Stock Analysis Report
Macy's Inc (M) : Free Stock Analysis Report
J.C. Penney Company, Inc. Holding Company (JCP) : Free Stock Analysis Report
PRO-DEC RET STR (EMTY): ETF Research Reports
PRO-L ONL/S STR (CLIX): ETF Research Reports
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