When you’ve hit pay dirt with a domestic-oriented investment strategy, why not try to repeat the magic by expanding it with an overseas focus?
That’s an approach taken by a number of exchange-traded fund sponsors, the latest being Amplify ETFs, which on Wednesday debuted the Amplify International Online Retail ETF (XBUY) that’s the overseas cousin of the successful Amplify Online Retail ETF (IBUY).
IBUY has garnered $291 million in assets since it launched almost three years ago. That’s great for the company, but more important for investors is that the fund has an aggregate return of nearly 80 percent since its April 2016 inception. That compares to a 26 percent price return on the S&P 500 Index and a 0.3 percent return on the $338 million SPDR S&P Retail ETF (XRT) during that period.
IBUY tracks an equal-weighted index composed of companies with at least 70 percent of their revenue coming from online and virtual sales. While many of the fund’s holdings have a global focus (after all, the internet is a worldwide phenomenon), roughly three-quarters of the constituents are U.S.-based.
XBUY’s structure differs from IBUY in that its underlying equal-weighted index tracks the performance of equity securities issued by non-U.S. companies that derive at least 90 percent of their revenue from online business transactions or e-commerce platforms. The largest country weights are China (28 percent) and Japan (23 percent).
The fund’s expense ratio of 0.69 percent is four basis points more than what IBUY charges. There’s about a 20 percent overlap between the two ETFs.
As per fund literature, the investment case for XBUY is clear enough: global online retail sales jumped an annual average of 26 percent from 2010 to 2018; 80 percent of total online retail sales in 2018 occurred outside the U.S.; and global internet and mobile usage continues to grow, making it easier for people to shop online.
It all makes for an enticing investment thesis. But in the world of investing not everything performs as diagrammed on paper. Take, for example, what is perhaps XBUY’s main competitor, the Emerging Markets Internet & Ecommerce ETF (EMQQ).
Launched in November 2014, EMQQ has more than $346 million in assets. It was one of the darlings of 2017 with a 68 percent gain, but its share price plunged almost 30 percent last year. It has rebounded in 2019 with a gain of 10.4 percent, buoyed by an overall snapback in emerging markets. Its total return since inception is 16 percent.
China comprises 61 percent of EMQQ’s portfolio, followed by a smattering of countries led by South Korea, South Africa and Russia. Its expense ratio is 0.86 percent.