US-based EQM Indexes, a provider of indices blending smart beta and thematic investment strategies, is set to make its European ETF debut next week with the launch of a strategy targeting e-commerce growth stocks.
The growth of online retail is a megatrend that has accelerated during the Covid-19 pandemic.
The Global Online Retail UCITS ETF is expected to list on London Stock Exchange in US dollars (IBUY LN) and pound sterling (PBUY LN), and on Deutsche Börse (IB0Y GY) and Borsa Italiana (IBUY IM) in euros.
It is being brought to market through a collaboration with European white-label ETF platform HANetf which will oversee marketing and distribution responsibilities.
Bricks to clicks
The shift from in-store to online shopping – so-called “bricks to clicks” – is a well-established global megatrend that has been gathering momentum since the mid to late 1990s.
This trend has accelerated over the past year as vast numbers of housebound consumers turned to e-commerce during the Covid-19 pandemic.
It is conventional wisdom that these consumers will not only maintain these newly established buying habits but that they will permeate deeper and wider, and into new product categories, as growing internet and mobile penetration combines with advances in technology (such as voice-assisted shopping, virtual and augmented reality, and artificial intelligence) to enhance the online retail experience.
“The case for online retail has never been stronger,” says Jane Edmondson, co-Founder and Principal of EQM Indexes. “Online retail is the fastest-growing segment of retail sales. Competitive pricing, shopping convenience, greater product selection, and rapid delivery have made online retail a disruptive technology that is here to stay.
“We are very excited the EQM Global Online Retail Growth Index will serve as the benchmark for a UCITS ETF in Europe. US investors have recognized the investment opportunity in online retail stocks and we expect to see similar demand from investors in Europe, Asia, and many other countries using UCITS products.”
Hector McNeil, co-Founder and co-CEO of HANetf, commented: “We are delighted to bring the Global Online Retail UCITS ETF to the European investment market. It focuses on a dynamic, fast-growing sector that has only just begun to change the way consumers shop all over the world. IBUY is an excellent addition to HANetf’s range of thematic ETFs which provide investors with the opportunity to participate in global megatrends.”
Methodology
The fund will track the EQM Global Online Retail Growth Index which selects its constituents from a universe of developed market stocks as well as American Depository Receipts of companies incorporated in emerging markets. To be eligible for inclusion, a firm must have a market capitalization above $250 million and an average daily trading volume of at least $1m.
The methodology screens for companies that derive more than 60% of their revenue from online retail or online marketplace commerce and have demonstrated positive year-over-year quarterly revenue growth.
An ESG screen helps to enhance the index’s sustainability profile by excluding firms that are proven violators of UN Global Compact principles as well as those deriving significant revenue from controversial weapons, fossil fuels, or oil sands.
Constituents are weighted by their percentage growth in year-over-year quarterly revenue while capping the maximum weight of any stock at 6% and the cumulative weight of emerging market companies at 20%. Rebalancing occurs on a quarterly basis.
More than half (56%) of the index is currently dedicated to stocks listed in the US with the next-largest country weights being Germany (10%), China (9%), the UK (7%), and Israel (5%).
Unsurprisingly, consumer discretionary stocks account for the vast majority (88%) of the index weight with minor exposure to the information technology (7%), communication services (3%), and real estate (2%) sectors.
Notable positions include Overstock (8.3%), DoorDash (6.7%), Etsy (6.2%), Fiverr (4.9%), Peloton (4.8%), HelloFresh (4.8%), Shopify (4.2%), CarParts.com (4.0%), and Delivery Hero (3.4%).
The fund will come with an expense ratio of 0.69%.
US sibling
EQM Indexes offers another global e-commerce index, the EQM Online Retail Index, which serves as the underlying for the $1.8 billion US-listed Amplify Online Retail ETF (IBUY US). This index includes firms globally that derive significant revenue from the online retail, online marketplace, and online travel market segments. Constituents are equally weighted with a maximum 25% exposure to non-US stocks.