In this week’s Macro Theme, we review “Draghi’s Dilemma” and the opportunity...
IBUY: The First Online Retail ETF
04/25/2016 10:00 am EST
Christian Magoon of Amplify Exchange Traded Funds has just launched the first exchange-traded fund that focuses exclusively on stocks in the online retail space. Here, he discusses the fund, the sector and some of the best-positioned stocks within this fast-growing market.
Steve Halpern: Joining us today is Christian Magoon of Amplify Exchange Traded Funds. How are you doing today, Christian?
Christian Magoon: I’m doing well, thanks, Steve. I appreciate you having me on the show today.
Steve Halpern: Now first, as background, can you tell our listeners about the Amplify ETF platform in general?
Christian Magoon: Yes, so Amplify ETFs is an ETF sponsor that’s launching the series of exchange-traded funds.
Most of these funds are going to be focused in unique market segments that don’t exist in the ETF space today or in investment strategies that may be available in mutual funds or separate managed accounts but aren’t currently in the ETF space, so most of what we do will be first-to-market products in the ETF format.
Steve Halpern: Now you’ve just launched the Amplify Online Retail ETF (IBUY), and this allows investors to capitalize on the market for online sales. Can you tell us about the ETF and why you decided to launch this product now?
Christian Magoon: Sure thing. So the ETF is an index-based ETF. It tracks an index called the EQM Online Retail Index. It’s an index that currently has 44 companies involved in online retail sales.
For a company to be included in the index, it has to receive 70% or more of its revenue from online sales. As you know, online sales have been growing since 1999 in the US.
They’ve been growing at 20% compound average annual growth rate. This is opposed to brick and mortar companies actually seeing sales go down, so this is a growing area of the retail and consumer discretionary area that wasn’t available in ETF format.
There are 19 consumer discretionary and retail ETFs in the United States, and virtually all of them focus on brick and mortar. This is a unique opportunity to focus on online retail, which we believe is a growing trend.
Steve Halpern: Now within this market, you’ve outlined three broad categories that you focus on, and let’s go through all of them. The first is what you referred to as traditional online retail. Can you explain what this space means and highlight some ops that fit this part of the model?
Christian Magoon: Yes, so, companies that fit in this online traditional retail segment are companies that probably many of us use on a daily basis. These are retailers selling online, again 70% or more of their revenue coming from online retail sales.
They include companies like Amazon (AMZN), Petmed (PETS), Lands’ End (LE), and Wayfair (W). These companies make up 60% of the current portfolio, which is the majority of the allocation for the iBuy ETF.
Steve Halpern: Now, the second group you identify is online travel. What are the prospects within this particular sector, and are there any specific stocks you find interesting here?
Christian Magoon: Yes, so it’s funny. Nowadays, most people don’t even know how to do any type of travel transactions unless it’s online. Online travel is kind of the dominant way to book travel arrangements, whether it’s flights or hotels or cars.
Steve Halpern: And now, finally, the third group you identify in iBuy is what you would call the online marketplace. What does this involve, and what companies in this area would be of particular interest?
Christian Magoon: So, online marketplace companies are really platforms where you can buy and sell a variety of different goods and services, so these are companies like eBay (EBAY) or Etsy (ETSY) or even the digital payment company PayPal.
There’s also a fair amount of companies that are based outside the US that are companies like MercadoLibre (MELI) or Alibaba (BABA), groups that provide that same platform that maybe Americans aren’t as familiar with, but certainly if you live in areas like China or South America, you’d be very familiar with. In fact, when you look at the overall portfolio, 75% of the companies are based in the US, and 25% are based overseas.
Steve Halpern: Now, despite the fact that online sales have grown so quickly, they still are a relatively small part of the overall retail market, so is it fair to say that this is a long-term trend where you would be comfortable with long-term investors taking positions in this ETF?
Christian Magoon: Yes, we believe this is definitely a long-term trend. You know, as we talk to investors and institutions, many talk about how they do use online retail travel companies, or marketplaces, or even retailers, so there’s a fair amount of penetration, but the stats show that this is still a young market.
According to the US Department of Commerce in their latest quarterly retail e-commerce report, just 7.5% of all U.S. retail sales are being done via e-commerce, so this is an area that certainly everyone is familiar with, but it’s still in its infancy.
Brick and mortar sales continue to dominate; however, this rate — 7.5% of online retail sales — has grown dramatically in terms of where it started in 1999 when the US Department of Commerce first began measuring it.
E-commerce in the US has grown 1899% since 1999, so it’s a trend that is continuing to gain momentum, and we think is going to be robust going into the future, as more people have internet access worldwide, as smartphones become more prevalent, as digital payment technology increases -- all of these things should bode well for online retail companies.
Steve Halpern: Again, our guest is Christian Magoon of Amplify ETFs. Congratulations on the launch of iBuy, and that you so much for your time today.
Christian Magoon: Thank you, Steve. I appreciate you having me.
By Christian Magoon of Amplify Exchange Traded Funds
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