Big Differences In 3 Biggest Retail ETFs

November 10, 2017

‘IBUY’ Leads ETF Pack

As well as RTH has done this year, it's not the best-performing retail ETF of 2017. That title belongs to a newcomer, the $134 million Amplify Online Retail (IBUY) ETF, which launched in April 2016 and is up 32.9% so far this year.


YTD Returns For IBUY, RTH, XRT


Unlike the other two retail ETFs mentioned, IBUY focuses exclusively on online retailers. Also unlike the other two, the ETF has a global scope—though U.S. stocks account for 80% of the fund's holdings.

Interestingly, Amazon has a current weighting of only 3.6% in the fund, illustrating that the growth in e-commerce is much broader than just one company. The ETF's current top holdings include Lands’ End, Carvana and

IBUY's unique take on the retail industry has resonated with investors, who added $106 million into the ETF this year. However, it's not the only retail ETF seeing buying this year.

The aforementioned XRT has seen inflows of $250 million this year, even as the price of the fund has dropped. Perhaps some investors are betting that the decline in the brick-and-mortar retailers that dominate the portfolio of XRT is overdone.

The Bull Case

Whether that bet pays off depends on how the outlook for brick-and-mortar retailers evolves from here. Dana Telsey, CEO of Telsey Advisory Group, and an expert on retail, has a relatively optimistic outlook for the industry, at least compared with most analysts.

"When you look at the same-store sales, the expectations are so low now that any little pop" makes the stocks trade much higher, she told CNBC, while adding that the group was "under-owned."

Case in point: On Thursday, shares of Macy's rocketed higher by more than 10%, even as same-store sales fell by a larger-than-expected 3.6% in the third quarter. The company reported better earnings than analysts had forecast thanks to cost cutting.

The enthusiasm about the Macy's rebound on Thursday spread to other retailers. Shares of JCPenney and Dillard's both soared almost 10%, while the XRT ETF climbed 2% on the session, outpacing IBUY and RTH, which were each trading close to unchanged.

Not So Fast

On the other hand, a recent report from Bloomberg warned that the worst of the downturn in retail is yet to come. According to the report, retail chains have more problems than just the shift to e-commerce.

"The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms," said the authors of the report.

They pointed to Nordstrom's inability to go private because of the lack of cheap financing and the bankruptcy of Toys ’R Us as just the beginnings of a retail “apocalypse” that will lead to accelerated store closings and many defaults in the coming years.

If that's the case, the bump in XRT may end up being a temporarily blip on a larger downtrend, rather than a sustainable turnaround for the ETF.

Contact Sumit Roy at [email protected]

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