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The Retail War Is Being Waged On The ETF Front, Too

ETF Professor

Following some recent, disappointing commentary about the holiday shopping season from some brick-and-mortar retailer coupled with buoyant Cyber Monday and other e-commerce data, investors are reminded that online retailers continue presenting significant competitive threats to the their physical rivals.

This war is making its way to the world of exchange traded funds. As MarketWatch recently reported, the Amplify Online Retail ETF (NASDAQ: IBUY), the first ETF dedicated to the online retail theme, is now slightly larger than the SPDR S&P Retail ETF (NYSE: XRT).

As of Jan. 9, IBUY had nearly $250 million in assets under management while XRT had $236 million and that's with investors having yanked almost $99 million from IBUY last year.

Why It's Important

Investors may have been hasty in departing IBUY last year as it gained 28.5%, more than double the 14.1% returned by XRT. That wasn't a one-off year, either. IBUY is up almost 88% over the past three years while XRT is up just 7.8%.

Confirming that investors are growing wary of traditional retail ETFs, each of the legacy funds in this category – XRT, the VanEck Vectors Retail ETF (NYSE: RTH) and the Invesco Dynamic Retail ETF (NYSE: PMR) – lost money last year, led by $325 million in departures from XRT.

While inflows to dedicated e-commerce were light, they existed, which can't be said of XRT and friends. For example, the Global X E-commerce ETF (NASDAQ: EBIZ) took in new money last year while the ProShares Online Retail ETF (NYSE: ONLN) joined IBUY in beating XRT by a wide margin.

What's Next

While the inflows weren't significant last year, just $4.34 million, the ProShares Decline of the Retail Store ETF (NYSE: EMTY) is another ETF showing how investors feel about brick-and-mortar retailers.

EMTY is an inverse ETF designed to profit from weakness in traditional retail equities, including many found in XRT. Obviously, that didn't make for a great showing in 2019, but as internet retailers continue pilfering market share and as more stores are closed, EMTY should join the likes of IBUY and EBIZ on the upside.

Remembering that by some analyst estimates, there are still 20,000 too many retail stores in the U.S., EMTY could perk up as soon as this year while XRT and friends could encounter more headwinds.

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