Check Out Internet Retail ETFs – Internet Shopping Is Coming Back
- By John Tierney
- 2 min read
• The retail sales data revealed a sharp increase in internet retail activity – possibly a response to rising gas prices.
• We recommend overweighting internet retail ETFs ONLN and IBUY and underweighting XRT, the brick-and-mortar ETF.
Two standout sectors in yesterday’s surprisingly strong retail sales release were monthly gains for gas stations (+3.9%) and furniture/appliance stores (+3.7%). No surprise there – people are spending more on gas and, with home sales booming, need new furniture and appliances.
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- The retail sales data revealed a sharp increase in internet retail activity – possibly a response to rising gas prices.
- We recommend overweighting internet retail ETFs ONLN and IBUY and underweighting XRT, the brick-and-mortar ETF.
Two standout sectors in yesterday’s surprisingly strong retail sales release were monthly gains for gas stations (+3.9%) and furniture/appliance stores (+3.7%). No surprise there – people are spending more on gas and, with home sales booming, need new furniture and appliances.
More surprising was the 3.9% jump in non-store (i.e., internet) retailers. This category soared after the pandemic lockdowns hit in March 2020, but over the past year have roughly tracked or even lagged the broader retail sales (Charts 1 and 2).
We see two things happening. First, Americans may be happy they can return to brick-and-mortar shopping, but they are not relinquishing the convenience of online shopping. And second, people may be opting for online shopping to avoid burning money on high-cost gas – a substitution ploy to mitigate the impact of inflation.
Two online retail ETFs – ONLN and IBUY – doubled in price in 2020 (along with the 800+lb gorilla Amazon). But they have gradually relinquished some gains in 2021, in line with internet retail sales (Charts 3 and 4). Aggressive investors should consider overweighting online retailers and underweighting XRT, the brick-and-mortar and goods-oriented ETF.
We view this as more a tactical trade that should play out in coming weeks or months than a medium-term macro trade.
Over a 30-year career as a sell side analyst, John covered the structured finance and credit markets before serving as a corporate market strategist. In recent years, he has moved into a global strategist role.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)