Amazon Prime Day is here.
Amazon’s two-day bargain-focused shopping vacation on Tuesday and Wednesday highlighted consumers’ shift to online shopping during a difficult year for traditional retailers. The stock is up nearly 89% year-to-date, dragging down online retail exchange-traded funds that hold the name.
The three most Amazon-exposed ETFs in the market – Fidelity’s MSCI Consumer Discretionary Index (FDIS) ETF, ProShares Long Online / Short Stores ETF (CLIX), and ProShares Online Retail ETF (ONLN) – are up 38%, 85% and 93% this year, respectively. The ONLN hit a 52-week high on Tuesday.
Four key factors have pushed investors towards e-commerce, Simeon Hyman, global investment strategist at ProShares, told CNBC’s “ETF Edge” on Monday.
First, “the transition is sooner than you might think. You haven’t missed it,” he said. “Only 16% of retail sales were online in the second quarter. So 84 cents were spent in physical stores and many of them were closed.”
The coronavirus pandemic’s boost to businesses also cannot be ruled out, Hyman said, adding that he helped push retail sales from 11% to 16%.
“Think about a quadrupling of penetration in latecomers, in the grocery store, and also the rigidity of the changes from people like Chewy – which are 70% subscriptions, so these new customers are sticky – or Etsy, who has so many more eyeballs after 15% of their sales came from masks, ”he said.
Third, the fundamentals, said the strategist. Walmart has made its way to number 2 in online retailing, but its margins have shrunk over the past 10 years while Amazon’s have doubled, he said.
“The fundamentals point to people online,” he said.
“Finally, if you see such an acceleration in performance, you worry about valuation. Let me make the surprising remark to you, if you look at the relative valuation of our online shopping cart, the ProShares online retail shopping cart, and compare it to the tech industry, we are trading at half the price of the book [value] three or four years ago. So at least on a relative basis – I know it’s hard to do an absolute valuation these days – not as expensive as you might think. “
Ed Rosenberg, senior vice president and head of ETFs at American Century, said Amazon’s influence is evident even in his company’s Focused Dynamic Growth (FDG) ETF, launched earlier this year.
“Even active managers recognize that in the retail space, Amazon is the game right now,” he said in the same “ETF Edge” interview.
Amazon’s “downstream impact” is also significant, Rosenberg said.
“If you buy online, where else does it have an impact? [go]? ”he said.“ Just using this fund as an example, one of the top 10 holdings is also Mastercard and I think you see some of the downstream impact of people using credit cards and growth in this area as well, whether it’s Mastercard, Visa, American Express, to take advantage of what’s happening with Amazon and Prime Day in addition to being online. “