ETFs To Capitalize On Retail's Pain, Amazon's Gain

With digital transformation in shopping and consumers splurging online, retailers especially bricks-and-mortar have been struggling with feeble sales forcing them to shut their stores or file for bankruptcy. On the other hand, e-commerce behemoth Amazon.com (NASDAQ:AMZN) has been the biggest beneficiary of this trend. The online giant has been expanding further into fashion and other streams of revenue generation. It is expected to dominate the whole retail space in the coming years (read: Tech Face Off: Amazon Versus Alphabet (NASDAQ:GOOGL) ETFs).

In order to capitalize on the ongoing shift, ProShares plans to launch three ETFs that would give investors a novel concept to go short on the bricks-and-mortar space and long on firms that stand to benefit the most from the boom in electronic commerce, as per the latest filing.

Even though a great deal of key information – such as tickers, expense ratio and holdings breakdown – was not available in the initial release, we have highlighted some disclosed details for those interested in a fresh bricks-and-mortar inverse play from ProShares provided it clears regulatory hurdles:

ProShares Long Online Short Bricks & Mortar Retail ETF

This proposed ETF looks to provide long exposure to the online retail space while at the same time offers short exposure to the largest retailers that are threatened the most by the online retailing trend. This can be easily done by tracking the performance of the Online vs Bricks and Mortar Retail Long/Short Index.

The online retailers include mainly U.S. firms having market capitalization of at least $300 million with a maximum allocation of 20% to non-U.S. stocks. Each firm will have equal weighting. Companies in the short exposure will consist of the 100 largest U.S. retailers that have market capitalization of at least $500 million (read: Amazon's Foray Into Grocery to Hurt/Help These Stocks & ETFs).

ProShares UltraShort Bricks and Mortar Retail ETF

This fund seeks to offer two times (200%) daily inverse return to the Bricks and Mortar Retail Index. The index consists of some of the 100 largest U.S. retailers that may be most threatened by the continuing trend to online retailing and will have equal weighting.

ProShares UltraPro Short Bricks and Mortar Retail ETF

This fund will offer three times (300%) daily inverse return to the Bricks and Mortar Retail Index.

Competition

While the proposed products don’t have a direct contender providing inverse exposure to this niche market, Amplify Online Retail ETF IBUY could give tough competition to the ETF that offers long position on the online retail space. IBUY has accumulated $65 million in AUM in just 15 months and gained about 30% in the year-to-date timeframe (read: Best and Worst ETFs of Q2).

It will not be difficult for the proposed products to garner sufficient investor interest in changing the retail landscape should they pass regulatory hurdles and generate decent total returns net of expense ratio. Investors as it is are looking for exposure to this underserved corner of the retail space.

Further, the proposed products would definitely get the first-mover advantage, as the trio will be the first set of inverse ETFs targeting bricks and mortar stocks.

A Note of Caution

These proposed products are highly beneficial for short-term traders but bear the risk of huge losses compared to traditional funds in fluctuating or seesaw markets. Additionally, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to the shorter period (such as, weeks or months) due to their compounding effect (see: all Leveraged Equity ETFs here).

As a result, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.

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