ProShares Sees 'Clear' Argument For Bearish Retail ETF

Investors betting on continued good fortune for e-commerce companies and online retailers this year are being rewarded. A pair of exchange traded funds dedicated to the online retail theme are up an average of 26 percent.

While that is well ahead of the S&P Retail Select Industry Index, that retail benchmark is higher by nearly 8 percent, perhaps indicating there's some gas left in the tank of traditional brick-and-mortar retail.

What Happened

The strength in the shares of some old guard retailers is weighing on the ProShares Decline of the Retail Store ETF EMTY. EMTY, which debuted last November, aims to deliver the daily inverse performance of the Solactive-ProShares Bricks and Mortar Retail Store Index. EMTY is a bearish, but not leveraged ETF.

The underlying index “is the first comprehensive, public securities index composed solely of traditional retailers, and is positioned to potentially become an industry standard for measuring the health of brick-and-mortar retailers,” according to ProShares.

EMTY is off about 4.4 percent year-to-date.

Why It's Important

EMTY's equal-weight index allocated 30.57 percent of its weight to apparel retailers and 11.08 percent to department stores — struggling corners of the broader brick-and-mortar retail space — at the end of the first quarter. 

Retailers generating the bulk of their revenue from in-store sales “are most vulnerable to the disruptive growth of online retail broadly and Amazon.com Inc. AMZN specifically given their reliance on sales at physical store locations and the overabundance of store space,” according to ProShares research.

While EMTY is scuffling this year, the inverse ETF offers plenty of potential going forward as retail industry dynamics change.

“Combine reduced profitability, an overstored U.S. retail sector and numerous closures and bankruptcies with the tremendous growth of online shopping destinations like Amazon, and the argument becomes clear,” said ProShares.

What's Next

In the near-term, EMTY could be a valid idea for aggressive, short-term traders looking to capitalize on events such as weak retail sales, slack earnings reports from brick-and-mortar retailers or announcements pertaining to store or chain closures.

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