- IBUY continues to push higher as investors look for e-commerce plays.
- The fund also has exposure to "experience" e-commerce stocks, which will benefit from re-openings.
- With stimulus checks likely to start hitting American households soon, consumer spending could see an uptick.
- Looking for more investing ideas like this one? Get them exclusively at CEF/ETF Income Laboratory. Learn More »
The purpose of this article is to evaluate the Amplify Online Retail ETF (NYSEARCA:IBUY) as an investment option at its current market price. This fund has been one of my top short-term picks, and it continues to be going forward. I see online buying accelerating in the year ahead, despite the pressure the economic re-opening will bring on that thesis. Further, IBUY holds many companies that will see an increase in demand from re-openings, so its portfolio is well positioned for a post-Covid world. Finally, rising consumer sentiment could be a tailwind for many discretionary corners of the market, whether in e-commerce or retail as a whole.
First, a little about IBUY. The fund's objective is "to provide investment results that, before fees and expenses, correspond generally to the price performance of the EQM Online Retail Index. The Index is a globally-diverse basket of publicly-traded companies that obtain 70% or more of revenue from online or virtual sales." Currently, the fund sits at $126.41 and yields .49%, based on the last annual distribution paid in December. I reiterated a bullish outlook for IBUY when 2021 got underway, and that call has been vindicated to date. While the broader market is up slightly, IBUY has registered a 6% gain:
Source: Seeking Alpha
With vaccine distributions underway and a general move to re-open economies around the world, I thought it was an opportune time to take another look at IBUY to see if I should adjust my rating. After review, despite the obvious concern that the re-openings of economies will hurt e-commerce plays, I actually don't see that thesis impacting IBUY substantially. I believe the shift to e-commerce is here to stay and, importantly, IBUY has a lot of exposure to companies that sell their products and services online, but will actually benefit from a re-opening U.S. economy because the services are used in-person.
E-Commerce Sales Are Still Elevated
First, I want to take a look at how the retail world has shifted as a result of Covid-19. While e-commerce has been a rising trend for years, that movement got a shot of adrenaline as world economies shutdown and consumers shifted to buying discretionary items and essentials over the internet. With many businesses closed and consumers stuck at home, this makes intuitive sense. However, with many states beginning to loosen capacity restrictions, it is time to start thinking about what a post-shutdown world will look like. It stands to reason that the e-commerce boom will soften somewhat, and that is actually what is already beginning to happen. To illustrate, consider that, on a seasonally adjusted level, the percentage of total retail sales that were classified as e-commerce has flat-lined in recent months, as shown below:
Source: S&P Global
I have two key takeaways from this graphic. One, e-commerce sales remain at an elevated level. This means the investment thesis behind this theme should have legs in the short term. However, the second takeaway is that the percentage of e-commerce sales has plateaued. This could mean the growth aspect behind the thesis is cooling, which could stifle some investor appetite going forward. While this is certainly a concern, we must consider two things.
One, I believe Covid-19 has fundamentally changed some aspects of our economy, and e-commerce sales is one of them. While growth may slow temporarily as retail shops open up for in-person buying, I do not see a return to levels in prior years. I believe too much demand has simply shifted online and that is not going to reverse. Two, when considering IBUY, readers should recognize the fund is not a pure retail e-commerce play. It focuses on companies that offer their products and services for sale online, but many of these companies will actually benefit from a re-opening economy because the products and services are designed for real world outdoor/in-person use. This is a point I will touch on next, and it is key to my bullish take on IBUY.
IBUY Is Not Really A Stay-At-Home Play
I want to emphasize the point that IBUY, despite appearances, is actually a fund that will benefit from consumers being able to shop in-person, travel, and otherwise socialize outside. This is important because much of the e-commerce boom discussion has centered around consumers buying and consuming goods at home - such as groceries, pet supplies, in-home entertainment, among other items. While IBUY certainly benefited from this, the fund is also made up of many companies that will actually do better when the economy is fully open. What I mean is, some of the top holdings still require consumers to take part in "in-person" experiences, such as hiring car services, going on trips, or other social activities. While, these companies facilitate the purchase of the product or service online, they are only useful if people are out and about. For example, when we look at the fund's portfolio, we see the top ten holdings are not really stay-at-home plays:
Source: Amplify ETFs
To understand why, let us look at some of these individually. The top holding is Groupon (GRPN), which offers discounts to venues, restaurants, and social activities. Clearly, demand for in-person discounts will have plummeted over the last year, and will surely rise as more consumers feel safe enough to dine out and take part in social group activities. As governments allow their jurisdictions to re-open, this is a company that should realize higher demand.
More great examples of this concept are companies like Lyft, Inc. (LYFT), and TripAdvisor (TRIP). Surely, ride sharing apps and travel platforms will benefit from a resumption of in-person activity. As more Americans feel safe travelling, whether in a plane or taxi/ride share, demand for these companies will also climb.
Further down the line, we see companies like Revolve Group (RVLV) and Stitch Fix (SFIX), which offer designer clothes and styling services. To be fair, this seems like the more basic e-commerce trend, with consumers purchasing apparel online rather than in-store. Thus, when stores re-open, it could stand to reason that online apparel/style providers could see a bit of a slowdown. In my view, I think that is a fair assessment, and that type of sentiment among consumers is probably partially responsible for the flat-lining of e-commerce sales percentage numbers I noted earlier. However, there are two reasons why I see demand remaining elevated for these types of companies.
One, as stores, restaurants, bars, and entertainment venues open, people are going to want to look their best when they go back out in the world. This should keep demand high for fashion/style and other beauty or discretionary products. Two, consumer confidence is starting to rise again. While it remains below pre-crisis levels (as expected), it has been edging higher in the short term, as seen below:
My point here is I see consumer spending remaining a driver of economic activity, and that will help the more discretionary companies within IBUY.
Foreign Exposure A Way To Diversify
My next point considers IBUY's foreign holdings, and why that could be an area that piques some investor interest. Importantly, this is a U.S.-dominated fund, but 24% of the total weighting does come from non-U.S. stocks:
Source: Amplify ETFs
During my last review, I took a look at some of the individual holdings within this foreign element. But for this review, I want to consider the non-U.S. exposure more broadly. Specifically, I see the markets as getting increasingly more correlated within the country. What I mean is, when we look at growth versus value, dividend payers versus non-dividend payers, and even the different market sectors, they have become quite correlated. Value will drop along with growth, dividend payers are not offering much protection, and defensive sectors are not acting very defensively. This has to do with a general run-up in equity prices across the board, which is resulting in sell-offs impacting just about everything on down days.
With this in mind, what is an equity investor to do? One idea is to branch out into some foreign exposure. While many developed markets face some of the same problems as the U.S., such as the pandemic and high government debt burdens, there is merit to looking overseas. One reason why is that investors as a whole tend to be very biased towards their home country. This means that an investor can set themselves apart from the herd by looking outside their own borders.
To understand why, let us consider equity investors on a global scale. When looking at an individual's portfolio, it tends to be predominately home grown, not just in the U.S., but around the world, as shown below:
Source: Charles Schwab
My point here is I see some genuine merit for U.S. investors to do some stock buying overseas. Whether this means individually picking stocks, or buying some funds with foreign exposure, I see this as a legitimate way to differentiate a portfolio and diversify. IBUY offers an easy way to enter into this type of trade, and it is still mostly U.S.-focused. This means it shouldn't put investors used to only U.S. equities too far out of their comfort zone.
A Potential Drawback
My final point takes a quick look at IBUY against some competing funds, which include the SPDR S&P Retail ETF (XRT) and the ProShares Online Retail ETF (ONLN). Each of these funds differ in some way, but they all have a large focus on the U.S. consumer, with specific attention to e-commerce. While I see a bull thesis for IBUY, I feel obligated to point out that it is the most expensive option, in terms of expense ratio, of these three funds. Further, while it is more diversified than ONLN, it has considerably fewer holdings than XRT:
|Fund||Number of Holdings||Expense Ratio|
My takeaway here is there are more diversified and cheaper online-focused ETFs out there. While I like IBUY, readers should consider these other funds as well to see which one is actually the best fit for them.
IBUY is sitting near all-time highs, so it is smart to be a little more cautious now than when the year started. However, I still see a case for more gains, so I am leaving my bullish rating in place. The fund will benefit from economic re-openings, stimulus checks, and a more confident U.S. consumer. With some international exposure and momentum on its side, I believe investors would do well to give this fund some consideration at this time.
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This article was written by
I've been in the Financial Services sector since 2008, which gives me an invaluable insight in how markets can turn. I currently work for a large-cap US Bank in funds management. I was a D1 athlete in college (men's tennis) when I got my Finance degree. I received my MBA in 2013 in North Carolina.
My readers/followers can trust that I won't pump any investment nor discuss a topic I don't genuinely follow and research. In that spirit, I list my portfolio here for transparency
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Utilities: VPU, BUI
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Cash position: 25%
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