ETFs for Making an Online Retail Play

Joel Anderson |

The data’s back and Cyber Monday was the biggest online shopping day in history. Again. In a continuation of a trend that shocks almost exactly no one anymore (unless you’re one of the poor saps who’s held a long position on JC Penney (JCP) over the last couple years), online retail continues to grow at a fairly explosive rate.

Online sales were up 20.6 percent, year-over-year, from 2012’s Cyber Monday according to IBM’s (IBM) Digital Analytics. Adobe (ADBE) , meanwhile, only reported a 16 percent increase, according to their data, but clocked $2.29 billion in total sales. That’s dwarfed by the $12.3 billion in sales at brick and mortar retailers on Black Friday and Thanksgiving, but the trend of online retailers claiming an ever bigger piece of the pie appears to be here to stay.

So, maybe you’re on board with believing that Amazon’s (AMZN) plans for world domination are legit. Or, maybe you think the fervor over the growth in online sales has led to those stocks being severely overvalued and on course for a major correction. However you see the market playing out, one has ample reason to look for ETFs that will provide an investor a chance to make their particular online retail play.

There is not currently an ETF dedicated to online retailers like the SPDR S&P Retail ETF ($XRT) tracks traditional retailers. However, for those willing to get creative, there are a few ETFs one can use to make place a bet on the health of the online retail segment.

SPDR S&P Retail ETF ($XRT)

While this ETF is specific to traditional retailers, it’s worth noting that online sales aren’t limited to just Amazon, EBay (EBAY) , and other dedicated online retailers. Most traditional brick-and-mortar stores are actively building out their online capacity, and it’s not hard to make the argument that investing in those companies will gradually evolve into an investment in online retail at a rate consistent with that of the market. What’s more, the piece of the online pie that’s there doesn’t come at the price of completely eschewing the rest of the retail industry.

Market Vectors Retail ETF ($RTH)

If you’re a fan of the argument for XRT, though, the Market Vectors Retail ETF is potentially a superior blend. The RTH includes major retailers like Wal-Mart (WMT) , Home Depot (HD) , and CVS Caremark (CVS) among its five biggest holdings. However, it also features Amazon as its single biggest holding at 9.55 percent of its portfolio. Again, this is a blend that should capture a big piece of both the brick-and-mortar and online retail pie.

First Trust Dow Jones Internet Index Fund ($FDN)

However, many investors may not want any part of the traditional retail stocks. If you’re really intent and making a more specific and targeted play with online retail and staying away from any ailing brick-and-mortar dinosaurs, one option could be the First Trust Dow Jones Internet Fund. Based on the Dow Jones Internet Index, all of the companies that receive at least half of their annual sales/revenue from the internet.

This may keep things strictly online, but it also means that it’s no longer strictly retailers, too. Amazon is the second largest holding, but Google (GOOG) is the biggest at 11.18 percent and Facebook (FB) is the third largest with 6.45 percent of the portfolio.

Internet HOLDRS ($HHH)

So, if one really wants to get more specific, the Internet HOLDRS ETF may be the way to go. Like other HOLDRS funds, it’s much smaller, featuring only 12 stocks and not tracking a specific index as a benchmark. Amazon makes up 43.03 percent of the fund, and EBay is another 22.83 percent.

Just Buy (or Short) Amazon

Of course, once you’re talking about an ETF with no index and only 12 holdings, with two stocks making up 65 percent of the portfolio, it starts to become unclear why one’s looking for ETFs at all. Online is still a fairly narrow industry, with only a handful of major players that are publicly traded. While clearly much riskier than an ETF, anyone really intent on making a specific play on online retail may be best served by taking long or short positions with Amazon or EBay.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ADBE Adobe Systems Incorporated 99.63 3.01 3.12 3,014,836
AMZN Amazon.com Inc. 704.20 7.45 1.07 3,033,782
CVS CVS Health Corp 97.38 -0.69 -0.70 9,327,821
EBAY eBay Inc. 24.05 0.59 2.51 8,013,983
FB Facebook Inc. 117.70 1.73 1.49 20,183,627
GOOG Alphabet Inc 720.09 15.85 2.25 1,929,467
HD Home Depot Inc 133.36 1.94 1.48 5,181,511
IBM International Business Machines Corp 148.31 1.54 1.05 2,929,257
JCP J.C. Penney Co. Inc. 7.83 0.15 1.95 11,664,986
MLNHF Midland Holdings Ltd Ord 0.42 0.00 0.00 0
WMT Wal-Mart Stores 70.24 0.74 1.06 8,827,986

Comments

Emerging Growth

CohBar Inc.

CohBar Inc is a research stage biotechnology company. The Company conducts investigational research into Mitochondrial-Derived Peptides to evaluate their therapeutic potential through in vitro and in vivo models.

Private Markets

Snapchat

Snapchat is the fastest way to share a moment with friends. The mobile app, allows users to not only share photos with friends but also control how long they can…

Dropbox, Inc.

Dropbox is a service that allows their users to bring all photos, docs, and videos anywhere, and share them easily. Any file saved to Dropbox will automatically save to all…

Events

2016 Marcum MicroCap Conference

The Marcum MicroCap Conference is dedicated to providing a forum where publicly traded companies with less than $500 million in market capitalization can network with the investment community. The 2016…

Learn more