5 Best E-Commerce ETFs for the Future of Digital Spending

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

If you're looking for a pure bet on e-commerce, the Amplify Online Retail ETF (IBUY) might be a good addition to your portfolio. The ETF invests in companies that generate more than 70% of their income via online sales. It offers a low cost ratio of 0.65 percent, or $6.50 on a $1,000 investment. Its three-year return on investment as of September 30, 2021 (the end of the third quarter) was also the highest on our list at 28.5 percent. The ETF's top holdings include well-known clothes, shipping, and food delivery firms such as Etsy (2.9 percent), Doordash (2.9 percent), and Revolve (2.9 percent) (2.9 percent ).

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

The ProShares Online Retail ETF (ONLN) is another ETF that focuses on companies that sell things online. Its cost ratio is lower than that of the Amplify Online Retail ETF, but its portfolio is less diverse. It holds a substantial amount of its assets in large e-commerce enterprises such as Amazon (23.7 percent), Alibaba (13.5 percent), and eBay (4.9 percent), therefore it may not be the best pick for individuals looking for diversity. The fund has returned 20.1 percent over the last three years and has a 0.58 percent cost ratio, or $5.80 for every $1,000 invested.

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

The Emerging Markets Internet + Ecommerce ETF (EMQQ) focuses on online firms that are not based in the United States. It is more expensive than others, with an expense ratio of 0.86 percent (the most on our list at $8.60 for $1,000 invested), and it has a lower three-year rate of return than other ETFs on our list. However, if you want to obtain exposure to other nations' IT industries, this ETF might be an excellent fit for your portfolio. The majority of the fund's assets are invested in Chinese companies. Nonetheless, it has stock in firms based in South Korea, India, Argentina, South Africa, Brazil, and Singapore, providing substantial international diversity.

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

If you want a broader exposure to internet companies than an ETF that concentrates primarily on businesses that offer things to clients online, consider the Invesco NASDAQ Internet ETF (PNQI). This includes web hosting companies, search engines, and merchants. Adobe (8.1 percent), Amazon (7.9 percent), and Alphabet (7.9 percent) are among the top holdings. This is one of the oldest ETFs on our list, thus it is more established. As of September 30, 2021, it had a fair cost ratio of 0.60 percent ($6 on a $1,000 investment) and had returned 20.9 percent over the previous three years.

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

The ETFMG Prime Mobile Payments ETF (IPAY) has the second-highest expense ratio on our list at 0.75 percent ($7.50 per $1,000 invested), and its three-year returns as of September 30, 2021, may be on the low side at 16.7 percent. However, exposure to huge corporations that allow online payments might be beneficial in the long term. Paying people is an important component of e-commerce, and many technology firms have attempted to make it simple for consumers to send and receive money from each other and from businesses. This ETF invests in firms that support online payments. Every e-commerce firm need the ability to collect payments, thus this is a one-of-a-kind method for you.

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.