Retail ETF Returns Reflect Industry Upheaval

May 15, 2017

What’s In Your Retail ETF Wallet?

The chart above is telling.

IBUY, the online retail ETF, has surged 23%, while the other equal-weighted fund, and the biggest—XRT—is down nearly 4%. That disparity is all about what’s under the hood.

There are few crossover companies like Amazon. IBUY weights Amazon at 2.99%, while XRT gives it a weighting of 1.15%, but that’s not the key to the outperformance.

The 40 holdings in IBUY are dominated by global online retailers, some of which you may not have heard of before: PetMed Express, Carvana,, Shopify, to name a few. By comparison, XRT’s 100 holdings are dominated by the old guard of U.S. retail: Sears, Best Buy, Macy’s, Tiffany, Nordstrom, Dollar Tree, J.C. Penney.

Both ETFs own Amazon, as well as names like Liberty Interactive, Wayfair, Etsy, Shutterfly and PetMed Express. But that’s where the overlap ends. And the weights each fund assigns to these like-holdings vary dramatically as well. For instance, PetMed Express is the top holding in IBUY, at 4.1%, while it represents only 0.40% in XRT.

The contrast of these two ETFs’ makeup and current performance is an accurate picture of the upheaval in the retail industry.

Amazon Juicing Returns

The second-best-performing retail fund, Van Eck’s RTH, tracks a market-cap-weighted index of the 25 largest U.S.-listed companies that derive most of their revenue from retail. The top holding here—you guessed it—is Amazon, at 17%. Amazon share prices are up 28% for the year, obviously powering RTH to a large share of its gains.

PowerShares’ PMR, the multifactor equal-weighted fund, doesn’t own Amazon, which might help explain its 1.3% loss so far this year.

And First Trust’s FTXD, a multifactor-weighted fund, also ignores Amazon, holding among its top 10 securities brick-and-mortar stores—eBay being the only exception.

It’s hard to argue that the way we shop hasn’t radically changed over the last 20 years, or even more so over the last 30 years. It has. And some retailers have tried to adapt, offering a combination of brick-and-mortar and online retail experiences, but a lot of these retailers—such as Walmart, Target and even Tiffany—still rely on revenue from buyers who walk into a physical store.

Investors looking into the retail ETF space should be aware of the bifurcation that has taken shape. Buying into the idea that consumer spending is strong and that retail sales will go up in the future is not enough. When it comes to retail ETFs, there are two distinct paths one can take.

At the time of writing, the author held none of the securities mentioned. Drew Voros can be reached at [email protected].


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