Amazon Prime Day has arrived.
Amazon’s bargain-focused two-day shopping holiday on Tuesday and Wednesday highlighted consumers’ shift to buying online in a tough year for brick-and-mortar retailers. The stock is up nearly 89% year-to-date, fueling the online retail exchange-traded funds that bear the name.
The three ETFs with the most exposure to Amazon in the market – Fidelity’s MSCI Consumer Discretionary Index ETF (FDIS), ProShares’ ETF Long Online/Short Stores ETF (CLIX) and ETF Online Retail ETF (ONLN) of ProShares – have increased by 38%, 85% and 93% this year, respectively. ONLN hit a 52-week high on Tuesday.
Four key factors have pushed investors into e-commerce, Simeon Hyman, global investment strategist at ProShares, told CNBC’s “ETF Edge” on Monday.
First, “the transition is earlier than you 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 business also cannot be ignored, Hyman said, adding that it helped push retail sales down from 16% to 11%.
“Think about a quadrupling of penetration in laggards, grocery stores, and also the rigidity of shifts from people like Chewy — who are 70% subscriptions, so these new customers are sticky — or Etsy, which has so many more eyeballs after 15% of their sales were from masks,” he said.
Third, the fundamentals, said the strategist. Walmart has risen to second place in online retail, 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’re worried about valuation. Let me give you the following surprising note: If you look at the relative valuation of our online shopping cart, the online retail shopping cart ProShares, and you compare it to the tech sector, we’re trading at half the price to the book [value] three or four years ago. So at least on a relative basis – I know it’s hard to make an absolute assessment 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 was 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” also matters, Rosenberg said.
“If you buy online, where else does it 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 that you’re also seeing growth in that area, whether it’s Mastercard, Visa, American Express, to take advantage of what’s happening with Amazon and Prime Day while being online.”