Thursday, December 3, 2020
“It was the best of times for e-tailers, it was the worst of times for retailers.”
If Charles Dickens were a financial analyst, that’s what he’d write about in 2020.
But he’s dead, and he was never really that into finance. So I’ll fill the void to make such a pronouncement, and then I’ll expound upon it.
Take note: the statement above is just as much a backward-looking fact as a forward-looking one — and that means there’s an investment opportunity hiding in plain sight here.
So let’s get to it…
Retailers Getting Scrooged
Earlier this week, I promised to share my Top 3 Trends heading into year-end.
First on the list is (shocker!) biotech.
Second is e-commerce.
Why? Because retailers are getting Ebenezer Scrooged this holiday season.
For those of you who insist it’s poor form to mix mentions of an author’s literary classics, I don’t give a damn. I’m not writing to bank Pulitzer Prizes here. I’m writing to help you bank profits.
And the best way to do that is to bet against traditional brick-and-mortar retailers, and bet on any and all companies involved in e-commerce.
Why? Simple. Because the double-whammy of a global pandemic and the decades-long boom in e-commerce sites like Amazon.com is permanently changing consumer behavior.
The latest data proves it, too.
And as you’ll see in a moment, there’s an easy way for us to make a single investment to go long e-tailers and short retailers…
Forget Work-From-Home, Focus on Shop-From-Home
One of fastest growing trends in response to the Covid-19 crisis is shopping from home.
In fact, the pandemic-induced changes have propelled U.S. online sales to a level not previously expected until 2022.
More specifically, eMarketer expects online sales to soar 32.4% this year, to $794.50 billion. That’s nearly twice the rate of growth originally predicted.
“We’ve seen ecommerce accelerate in ways that didn’t seem possible last spring, given the extent of the economic crisis,” said Andrew Lipsman, eMarketer principal analyst at Insider Intelligence.
Make no mistake, this trend is universal and permanent.
By that I mean, we’re not simply seeing an increase in online shopping for obvious essentials like groceries. But instead, we’re seeing an across-the-board uptick. Globally. For everything from footwear and jewelry to appliances and electronics, based on the latest survey from McKinsey & Company (see Exhibit 7 here).
Don’t be fooled into thinking that once the pandemic passes (and we all can’t wait), shopping will return to normal. It won’t.
Brick-and-mortar is out. Click-and-order is in!
Or more simply, e-commerce has gone from a convenience to a necessity. That’s obvious when you consider that it now makes up 20.6% of all U.S. retail spending. And growing.
So how do we profit from these competing realities for online and offline retailers?
There’s an ETF For That!
When it comes to e-commerce, obvious investments come to mind like Amazon.com (AMZN), Shopify (SHOP), Alibaba Group (BABA) and eBay (EBAY).
Candidly, your bottom line would probably be well served by going long any and all of them.
But then comes the hard part:
Pairing those long trades with compelling short trades in primarily brick-and-mortar retailers destined to struggle.
Thankfully, you don’t have to worry about doing any of that hard work because – you guessed it – there’s an ETF for that!
The ProShares Long Online/Short Stores ETF (CLIX).
As the name suggests, this ETF combines long positions in retailers with leading online businesses, with short positions in companies that derive 75% or more of sales from brick-and-mortar stores.
There are market cap requirements, too (> $500 million) and monthly rebalancing to ensure the ETF doesn’t change in price too much based on a single or handful of stocks.
In other words, it provides as pure-play of an investment you can get to go long the entire e-commerce sector, and short the entire retail sector.
In a single purchase, to boot.
But wait. There’s more…
This ETF is managed to overweight e-commerce stocks with a 100% long position. It only holds a 50% short position in companies relying almost exclusively on physical stores.
This 100/50 set-up means the fund is naturally hedged against the overall market, which should help reduce volatility.
Add it all up — and you’d be a fool not to stuff your portfolio with a few shares of the ProShares Long Online/Short Stores ETF (CLIX).
It’s the only way you can profit from the best of times and worst of times at the same time!
Ahead of the tape,