The e-commerce industry has seen an explosion in popularity over the past decade. Smartphones, a progressively digital world, and more efficient logistic networks have contributed to this growth, and adoption should continue to grow for some time.
While consumer preferences were already favoring e-commerce, the COVID-19 pandemic and ensuing lockdowns added gasoline to the industry's growing fire.
In the U.S. alone, e-commerce revenue jumped from $479 billion in 2019 to $616 billion in 2020. It's expected to break the $1 trillion mark by the end of 2024. Growth has understandably slowed since reopenings have occurred, but it's still headed in the right direction.
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The global e-commerce growth potential is huge. Even with the recent surge, the industry is still in its early stages as the $5.2 trillion in global e-commerce sales in 2021 made up less than one-fifth of all retail sales. By 2030, e-commerce is expected to represent over 30% of retail sales, according to Insider Intelligence.
A bet on the broader industry
Luckily, you don't always have to pick a winner in the investing world. Exchange-traded funds (ETFs) have made it so you can invest in a broad sector or industry with a single investment. In the case of e-commerce, it's a good route to take.
The Global X E-commerce ETF (EBIZ 1.85%) tracks the Solactive index, which focuses on companies involved in all aspects of e-commerce. In addition to online retailers and marketplaces like Amazon, it includes companies in sub-industries like infrastructure, logistics, and payments.
EBIZ contains 40 stocks with the assets distributed fairly evenly. Its top five holdings are (as of July 25):
- Shopify: 6.55%
- Wayfair: 6.04%
- Amazon: 5.03%
- Booking Holdings: 4.83%
- Global-E Online: 4.63%
The fund is market cap-weighted, but its weighing methodology is slightly modified, so it remains relatively diversified. Otherwise, a mega-cap stock like Amazon would account for a large portion of the fund, defeating a lot of the purpose of an ETF.
Diversification plays an important role
One of the core benefits of an investment in EBIZ is its diversification. Broad exposure allows you to benefit from the industry's growth instead of relying on a particular company's success (or lack thereof).
A key to this diversification is investing in companies globally, which EBIZ does. U.S. companies represent less than half of the fund:
- U.S.: 49.3%
- China: 22.0%
- Canada: 7.1%
- Argentina: 4.9%
- Israel: 4.5%
- Singapore: 4.1%
- Britain: 4.0%
- Japan: 3.2%
- Germany: 0.5%
- Australia: 0.5%
With e-commerce growing at a large scale globally, you don't want to limit yourself to U.S. companies. You also don't want to be susceptible to country-specific conditions that could weigh too much on your investment.
For instance, extended lockdowns took (and continue to take) a huge toll on China's e-commerce industry, the largest globally. An investment in China's top e-commerce companies over the past year would look a lot different from an investment in a broad e-commerce ETF like EBIZ.
Data by YCharts.
Who is this ETF best suited for?
If you're interested in investing in e-commerce, EBIZ can play a good role in your portfolio. However, as with any investment, it's important to make sure it fits your investment goals and risk tolerance.
EBIZ contains companies focused on growth, so it's a more attractive option for investors with time on their side. This also means it's likely to be more volatile along the way, so investors should be prepared to stomach that.
All in all, the e-commerce industry growth potential and industry-leading companies within EBIZ make it an attractive choice for long-term investors looking to get exposure to e-commerce.