Amazon’s Online Retail ETF Impact

The two biggest online retail ETFs experienced Prime Day very differently.

These days, every retailer has an online storefront. But online retail as a segment is dominated by one player: Amazon (AMZN). In fact, many investors are increasingly using online retail ETFs as a tactical play on the company.

One concrete example: last week's Prime Day. Prime Day is Amazon's annual sales event featuring special bargain prices for its 150 million Prime members. It's become as big a retail event as Black Friday or Christmas Eve—bigger, in some ways, because Prime Day lasts 24 hours, rather than being limited to only the hours physical stores may be open.

This year's Prime Day occurred over Oct. 13-14, and while the final sales numbers are still trickling in, early estimates suggest a 35-45% rise in sales year over year.

Naturally, online retail ETFs saw a price pop due to the event: Over the past 30 days, the $1.03 billion Amplify Online Retail ETF (IBUY) has risen 13%, while the $535 million ProShares Online Retail ETF (ONLN) rose 11%. (That's on top of already pretty stellar performance for 2020: Both are among the top-performing ETFs of the year.)

Source: StockCharts.com; data as of Oct. 19, 2020

Yet of the two ETFs, only ONLN saw significant Prime-Day-related investor demand in terms of inflows. The fund has seen an influx of $206 million over the past month; on Oct. 14 alone, it brought in $173 million in new net cash.

But not IBUY.

For years, IBUY has been the behemoth of online retail ETFs, with more than $1 billion in assets and significant first-mover advantage. So why didn't IBUY feel the love from investors on Prime Day, too?

For Online Retail ETFs, Weighting Is Key

The answer lies in how the funds are weighted. IBUY is an equally weighted-"ish" fund that breaks its exposure into two buckets: 75% goes into U.S. stocks, while the remaining 25% goes into international equities. Within those two brackets, names are equally weighted.

As a result, exposure to any one company is greatly diluted. As of Oct. 19, Amazon only comprised 2.5% of IBUY's portfolio.

Meanwhile, ONLN uses market-cap weighting, but with individual security and aggregate weighting caps. It's also much smaller than IBUY, with 27 constituents compared to IBUY's 51.

As such, Amazon easily dominates ONLN's holdings with a 23% weight. Alibaba Group (BABA) is the fund's next largest holding, at 12%. 

(To find which ETFs hold a particular stock, use our ETF Stock Finder tool.)

Which Online ETF For Whom?

For investors looking to tactically play big news events or breaking developments for Amazon, then ONLN is a solid choice. Its portfolio offers a one-stop-shop "Amazon-plus" exposure that can harness movements in the world's biggest e-commerce company, while also providing significant exposure to other big-name players worldwide.

But for investors looking for that long-term exposure to the growth of the online retail sector as a whole, the calculus hasn't changed: IBUY remains the standout.

Its diversified portfolio provides exposure to established players and up-and-comers, and while tiered exposure may prevent the portfolio from capturing high-flying performance from any one name, it'll avoid single-stock downside risk as well.

Want to learn more about how IBUY and ONLN compare? View them in our ETF Comparison Tool.

Contact Lara Crigger at [email protected]