The E-commerce revolution: investing in the online retailing boom | BetaShares

The E-commerce revolution: investing in the online retailing boom

BY BetaShares ETFs | 23 February 2022
Share
The E-commerce revolution: investing in the online retailing boom

Reading time: 3 minutes

Already growing in importance prior to the COVID-19 pandemic, the forced lockdown of millions across the world in the past two years has rapidly introduced many more to the convenience, value and choice available through online shopping. As a result, what was a strong trend prior to COVID-19 has accelerated, and it appears there’s no turning back.

What’s more, thanks to strong network effects, those companies that are already succeeding in the rapidly evolving online marketplace appear poised to retain a strong competitive position. Especially for Australian investors, where dynamic online companies account for only a relatively small share of the overall market, exposure to leading global online commerce companies offers the opportunity for both growth and diversification within their portfolios.

Investors can now consider the BetaShares Online Retail & E-Commerce ETF (ASX Code: IBUY), which has been designed to provide exposure to some of the world’s leading online retail companies.

E-commerce: A rapidly growing marketplace

Faster internet speeds and more secure payment and delivery systems mean it is becoming even easier to buy a wide variety of goods and services safely and conveniently online.

In the U.S., for example, the E-commerce share of total retail sales has increased from just under 1% at the height of the late 1990s internet boom to a recent peak of 15.7% in April 2020. With the U.S. economy re-opening, the share had eased to 13% by July 2021, still well up on pre-COVID levels.

U.S. E-Commerce Retail Sales

US ecommerce sales

Source: U.S. Census Bureau.

In the 10 years to July 2021, U.S. online retail sales grew at an annualised rate of 15.6%, compared with 4.9% p.a. for overall retail sales.

The online retail megatrend is also well established globally. According to research firm EMarketer, E-commerce already accounted for around 20% of retail spending in 2020. This share is expected to grow to 25% by 2025, implying 5-year online sales growth of 12% p.a. from last year’s levels, or more than twice the 5% p.a. expected for overall global retail spending.

Global E-Commerce Sales

global ecommerce sales

Source: EMarketer. Forecast outcomes may differ materially from actual outcomes.

Exposure to leading global online retailers

The index which the IBUY ETF aims to track provides exposure to up to 100 of the leading E-commerce companies around the world.

To quality for index inclusion, companies must derive at least 65% of revenues (or a minimum of $US90 billion) from one of three online retail business segments:

  • Online Retail – online shopping in the form of electronic or virtual commerce which allows consumers to buy goods or services directly over the internet.
  • Online Travel – online booking of travel or travel-related services.
  • Online Marketplace – online platform in which consumer transactions are processed by the marketplace operator and then delivered and fulfilled by participating retailers, restaurants, or wholesalers.

The current index constituents include many well-known, successful online companies such as Netflix, Amazon, PayPal and Uber. The Index also includes exposure to some of Asia’s leading online companies, such as Tencent and Alibaba.

Top 10 Companies in IBUY’s Index: 18 February 2022

TENCENT HOLDINGS LTD 8.8%
AMAZON.COM INC 7.7%
ALIBABA GROUP HOLDING LTD 6.4%
MEITUAN 5.7%
JD.COM INC 5.2%
AIRBNB INC 5.0%
NETFLIX INC 5.0%
BOOKING HOLDINGS INC 4.8%
SHOPIFY INC 4.1%
PAYPAL HOLDINGS INC 3.8%

Source: Bloomberg. No assurance is given that these companies will remain in the index or be profitable investments. IBUY’s Index is the Solactive EQM Online Retail and E-Commerce Index.

Since its inception in May 2016, the Index which the IBUY ETF aims to track has delivered annualised $A returns of 20.6% to end-January 2022, compared with 13.3% for the MSCI All Country World Index1.

IBUY vs MSCI ACWI - January 2022

Source: Bloomberg. Past performance is not an indicator of future performance. You cannot invest directly in an index.

Summary

Already growing prior to the COVID-19 pandemic, the trend towards online retail has only accelerated over the past year with millions forced into home lockdown. With many more discovering the convenience, value and choice available through E-commerce platforms, it seems likely that the share of shopping conducted online will grow further in coming years – making this a potentially attractive ‘megatrend’ investment theme.

The BetaShares Online Retail & E-Commerce ETF (ASX Code: IBUY) aims to provide a cost-effective and easily accessible way to gain exposure to some of the world’s leading online retailers.

There are risks associated with investment in the Fund, including market risk, sector risk, international investment risk and concentration risk. The Fund’s returns can be expected to be more volatile (i.e. vary up and down) than a broad global shares exposure, given its more concentrated exposure. The Fund should only be considered as a component of a diversified portfolio. For more information on risks and other features of the Fund, please see the Target Market Determination (TMD) and Product Disclosure Statement, available at www.betashares.com.au.


1. Past performance is not indicative of future performance of the Index or ETF and does not take into account ETF fees and expenses. You cannot invest directly in an index. The Index’s performance can be expected to be more volatile (ie vary up and down) than a broad market index.

Leave a Reply