E-commerce, which includes online shopping and other internet transactions, is a rapidly expanding sector of the economy. Shopping and making payments online is handy for individuals all over the world, so it's clear to see why the e-commerce sector is so popular. Because there are so many companies participating in e-commerce, investing in an e-commerce exchange-traded fund (ETF) may expose you to tech-savvy enterprises in a range of industries. After examining e-commerce ETFs, we've compiled a selection of ETFs that may be suitable for your portfolio.
Amplify Online Retail ETF (IBUY)
- 3-year return (as of Sept. 30, 2021): 28.5%
- Expense ratio: 0.65%
- Assets under management (AUM as of Oct. 26, 2021): $906.7 million
- Inception date: April 20, 2016
ProShares Online Retail ETF (ONLN)
- 3-year return (as of Sept. 30, 2021): 20.1%
- Expense ratio: 0.58%
- Assets under management (AUM as of Oct. 25, 2021): $875.6 million
- Inception date: July 13, 2018
Emerging Markets Internet + Ecommerce ETF (EMQQ)
- 3-year return (as of Sept. 30, 2021): 16.2%
- Expense ratio: 0.86%
- Assets under management (AUM as of Oct. 26, 2021): $1.29 billion
- Inception date: Nov. 12, 2014
Invesco NASDAQ Internet ETF (PNQI)
- 3-year return (as of Sept. 30, 2021): 20.9%
- Expense ratio: 0.60%
- Assets under management (AUM as of Oct. 26, 2021): $1.06 billion
- Inception date: June 12, 2008
ETFMG Prime Mobile Payments ETF (IPAY)
- 3-year return (as of Sept. 30, 2021): 16.7%
- Expense ratio: 0.75%
- Assets under management (AUM as of Oct. 27, 2021): $1.22 billion
- Inception date: July 15, 2015
Pros and Cons of Investing in E-Commerce ETFs
Pros
- Exposure to a rapidly growing industry
- Diversification
Cons
- A few players dominate the industry
- Many e-commerce businesses are concerned with more than simply e-commerce.
Pros Explained
- Exposure to a growing industry: E-commerce is a massive business that has only risen in importance as technology has evolved. Between 2012 and 2021, the share of total retail spending accounted for by online sales increased from 7.3 percent to 18.6 percent. E-commerce ETFs allow you to participate in this expanding industry.
- Diversification: If you wish to invest in e-commerce, enterprises from clothes to food delivery and just basic retail use digital sales and payments. Investing in an e-commerce ETF allows you to easily diversify your portfolio because the fund will most likely cover a wide range of businesses.
Cons Explained
- A few players dominate the industry: You may be concerned that a few large firms, such as Amazon, Walmart, or eBay, would dominate the market and, as a result, the holdings in e-commerce ETFs, making it harder to locate opportunities. That makes sense given Amazon's ownership of 40% of the US e-commerce sector as of February 2021. If you're not a fan of Amazon or already invest in it in other ways, e-commerce ETFs might not be for you.
- Many e-commerce businesses are concerned with more than simply e-commerce: It may be tough to invest purely in the e-commerce market because many of the largest e-commerce enterprises do more than just sell things. Returning to Amazon, the corporation also provides cloud computing through AWS. If it's included in an e-commerce ETF, you're investing in more than simply Amazon's retail operation.
Historical Performance Trends
E-commerce has risen in popularity as more people obtain internet access, and technology has made online purchasing more convenient. For example, when the pandemic struck in 2020, internet purchasing from home increased, and revenues increased by more than 40% year over year in the second quarter. Sales were still growing in the second quarter of 2021, with customers spending about $1 of every $5 at online merchants. The e-commerce ETFs on our list have all demonstrated strong long-term performance and returns on investment. As of September 30, 2021, all three-year rates of return were between 15% and 30%. If you were considering investing in one of these ETFs, you should consider alternative types of funds before deciding if it was the correct choice for you. As of Oct. 26, 2021, the S&P 500 had returned 19.83 percent over three years, while the Dow Jones Industrial Average had returned 12.86 percent.Is an E-Commerce ETF Right for Me?
An e-commerce ETF may be appropriate if you want to invest in IT businesses that sell things or handle payments online. This is especially true if you believe that internet purchasing will continue to outnumber in-store buying. As always, consider your investments and discuss them with a financial counselor to ensure you're making sound financial decisions.The Bottom Line
E-commerce is a popular business that had significant growth between 2019 and 2021. Investing in an e-commerce ETF provides exposure to the online sales business, as well as one way to speculate on societal trends such as food and apparel delivery, as well as online payments.Frequently Asked Questions (FAQs)
What is e-commerce ETFs?
E-commerce ETFs are exchange-traded funds that invest in companies that provide products and services to consumers over the internet. This can include merchants such as Amazon or Walmart, as well as applications that assist you get takeout such as Doordash.How can I invest in e-commerce ETFs?
E-commerce ETFs can be purchased through a brokerage account. You may be able to locate a broker that operates its own ETFs, or you may be able to utilise your brokerage account to purchase ETFs from suppliers. This can be accomplished online, using an app, or in person with a broker.When should I buy e-commerce ETFs?
Even when investing in diverse ETFs, timing the market may be challenging. If you believe e-commerce will grow in popularity, you should consider purchasing stock sooner rather than later. However, consider how your investments correspond with your financial goals and meet with a financial counsellor to explore your options.