A Hidden Gem Among Internet Retail ETFs

Identifying this year's best-performing exchange-traded funds isn't difficult. It may be painting with broad strokes, but investors looking for the ETF cream of the crop in 2020 should examine thematic funds.

Within that space, some of the best performers focus on e-commerce and online retail and not all of these high-fliers are dominated by Amazon AMZN.

What Happened: In fact, not all of the best online retail ETFs are dedicated to domestic stocks. Take the case of the Amplify International Online Retail ETF XBUY.

XBUY, which is the international answer to the popular Amplify Online Retail ETF IBUY, is higher by almost 43% year to date.

XBUY, which debuted in January 2019, tracks the EQM International Ecommerce Index. That index is comprised of “equity securities issued by non-U.S. companies that derive at least 90% of their revenue from online business transactions or e-commerce platforms,” according to Amplify ETFs.

Why It's Important: It's not unusual for international ETFs with e-commerce exposure to deliver impressive performances. What is unusual is for those funds to not be dedicated emerging markets plays. In fact, just six of XBUY's 15 geographic exposures are classified as developing economies and only China at a weight of 19.70% materially affects the fund's performance.

“Unlike other thematic ETFs in the category that are emerging markets focused, XBUY has broad international exposure that includes both developed and emerging Markets,” according to Amplify. “The result is a smoother ride delivered by the broader exposure.”

Japan is XBUY's top country weight at almost 22%. The U.K. is third at 14.1%. The fund also checks another box for investors – one that's often lacking with comparable domestic products: reduced dependence on large stocks. Large-cap equities represent just 35.2% of XBUY's while small- and mid-cap names combine for the remainder.

What's Next: The bottom line is e-commerce is growing around the world, not just in the U.S. and XBUY helps investors capitalize on that theme with focusing on emerging markets or with significant overweights to Chinese equities.

“Online retail is a global theme with growth that will continue to accelerate post-pandemic,” notes Amplify. “International e-commerce is not restricted by geography, facilitating cross-border transaction growth.”

This year, XBUY is easily topping the MSCI EAFE and MSCI Emerging Markets indexes as well as other, broad international benchmarks.