The index starts with every non-US stock and removes those deemed too small or too illiquid. It then picks up companies that make 90% of their revenue from ecommerce. No explanation is given in the prospectus or index methodology pamphlet about how the revenue calculation is made or what data is used.
Companies that make the cut are then divided into two "liquidity pools". The first pool consists of the top 80% most liquid ecommerce companies. The second of the 20% least liquid. Companies in the less liquid pool have their weight in the index reduced by 50%. Companies are equally weighted within their pool.
While there are other ecommerce ETFs on the market, including two from ProShares, and intenret ETFs targetting non-US companies (like EMQQ) this is the first international ex-US ecommerce ETF available in the US.
Analysis - ecommerce: the data tells two stories.Online retail has certainly been disrtuptive. Here the data is very clear.
- Bankruptcies among brick and mortar retailers are up one third
- For each percent of shopping that moves online, brick and mortar retails profit margins shrink by half a percent (Morgan Stanley's estimates)
- The PE ratio of Amazon is 10x that of brick and mortar retailers, suggesting the market has made up its mind.
Source: The Economist
Yet there is also evidence the theme has been overplayed.
- Ecommerce makes up only 10% or so of global retail sales, data from Deloitte indicates.
- In the crucial food and beverage category, ecommerce penetration is in the low single digits.
- Much ecommerce growth is being captured by incumbents.
- Amazon still only makes only one-third of Walmart's revenue, yet has a larger market capitalisation all the same.
We'll have to wait to see how this theme plays out. But in the meantime, consumers are unlikely to enjoy shopping any less. And this ETF provides a useful tool for tapping what many regard as a global theme.