ETF Investing: Activity in this ETF shows where investors expect retail-sales growth to come from

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Consumers have been voting with their dollars over the past several years, moving decisively to online retail over brick-and-mortar stores, and increasingly, investors are as well.

In a reflection of this trend in consumer spending, a formerly tiny exchange-traded fund dedicated to companies that derive a majority of their revenue from online purchases has seen massive growth over the past year, a swelling of assets that has made it the biggest retail-specific fund of any type on the market.

The Amplify Online Retail ETF IBUY, +0.45%  has had inflows of about $276 million over the past year, according to FactSet, bringing its total assets to $328 million. That’s larger than the former behemoth of the space, the SPDR S&P Retail ETF XRT, +1.26% which has $309.5 million in assets.

While the SPDR fund has had inflows of $50 million over the past 12 months, it has seen a sizable retreat thus far in 2018, with nearly $250 million being pulled from the fund year to date.

Still, the SPDR fund continues to be a favorite for investors. According to FactSet, its 30-day average volume is about 3.9 million shares. In comparison, the Amplify fund has a 30-day average below 100,000 shares.

While the Amplify fund is the largest ETF dedicated solely to retail, there are related funds that are notably bigger. The Consumer Discretionary Select Sector SPDR ETF XLY, +0.39% for example, has $13.1 billion in assets.

The growth in the online ETF has been noteworthy. According to FactSet data, it had a mere $5.5 million in assets at the start of 2017, which swelled to $172.8 million by the end of the year. Its assets have nearly doubled again thus far this year, making it one of the mosxlyt successful thematic ETFs on the market.

In part, the growth in assets reflects better performance, which in turn reflects the growing consumer shift to shopping online and away from brick-and-mortar stores. Thus far this year, the Amplify fund is up nearly 13%, compared with the 3.3% gain of the SPDR S&P fund, which tracks the entire retail space. The consumer-discretionary, or “XLY”, referring to its ticker, meanwhile, is up 6.3% so far in the first five months of the year. The S&P 500 SPX, +0.15%  is up 1.7% in 2018.

The outperformance of online retailers has been fairly consistent, coming at a time when companies like Amazon.com Inc. AMZN, +0.50%  continue to gain market share and brick-and-mortar retailers have been struggling. Amazon—whose stock-price gain have lifted the entire market—in particular is seen as having an “iron grip” on the space.

While Amazon is synonymous with online retail, it is only the ninth-largest component of the Amplify fund, accounting for about 3.86% of the portfolio. The biggest components include Shutterfly Inc. SFLY, +0.91% Etsy Inc. ETSY, +0.86% Netflix Inc. NFLX, +0.34% and Grubhub Inc. GRUB, +1.65% among others.

Don’t miss: Companies like Shopify help smaller retailers compete in an Amazon world

The following chart, from FactSet, compares the performance of the Online Retail ETF (gold) against the SPDR S&P Retail ETF (blue) over the past two years.

Chart from FactSet

The lengthy decline in physical retail has fueled an investor exodus. Assets in the SPDR fund peaked at about $1.7 billion in early 2015, according to FactSet, compared with the roughly $300 million now—a drop of more than 80%. It was launched in June 2006; Amplify’s made its debut in April 2016.

E-commerce has long been one of the fastest-growing segments of retail. According to the Department of Commerce, e-commerce sales totaled an estimated $143.1 billion in the fourth quarter of 2017, the most recent period for which there is data. That represents growth of 16.8% from the fourth quarter of 2016. Total retail sales, including brick-and-mortar revenue, was up 5.3% over the same period—or less than one-third the growth. E-commerce sales totaled 8.9% of total sales in 2017, up from 8% in 2016.

Among other retail-themed funds, the VanEck Vectors Retail ETF RTH, +0.78%  has $68.7 million in assets while the PowerShares Dynamic Retail Portfolio PMR, +0.00%  had under $11 million.

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