As reported by Comscore in their State of Digital Commerce report, US online retail spending exceeded a trillion dollars ($1.09 Trillion) in 2022, making it the highest year of digital commerce recorded. Undoubtedly, the growth of digital commerce represents a permanent change in how people shop, as the ease and optionality it provides have elevated its appeal in the minds of consumers, post-COVID. For investors, the e-commerce landscape allows for pure-play investments into distinct aspects of the digital ecosystem that are essential for online commerce to occur; it is these areas that allow for wealth to be generated.
Looking at the parts, that make the whole
The e-commerce ecosystem has many intermediaries, each playing a crucial role in creating a seamless transactional experience for consumers. For investors, these intermediaries are representatives of established and/or emerging industries that can be invested in through specific investment solutions. Below are some segments of the e-commerce ecosystem that investors can gain exposure to, through dedicated ETF strategies.
Industry: Payment Processing
These companies provide the payment processing services that allow businesses to securely accept payments from customers. As detailed in Mckinsey’s 2022 Global Payments Report, here, revenue growth in 2021 was up 11% from the previous year; leading to a record $2.1 Trillion globally. The projected 5-year outlook for the payments industry now exceeds pre-pandemic expectations, topping $3 Trillion by 2026.
For investors interested in gaining access to the payments industry, ETFMG Prime Mobile Payment ETF (IPAY) provides pure-play exposure to firms providing payment infrastructure, processing, solutions and services. Alternatively, for investors that are looking for a fintech solution that has ‘payment exposure’, but also reflects other financial innovation themes, the Global X FinTech ETF (FINX) offers cross-sector exposure to emerging financial technology opportunities.
Industry: Technology Platforms
The growth of the e-commerce landscape is directly associated with the rise of big tech companies offering white-labelled platforms that can be used for entrepreneurial activities. The business model of companies such as Shopify (TSX:SHOP) and BigCommerce is predicated on providing technology tools and platforms that businesses use to manage and optimize their e-commerce operations.
The ProShares Online Retail ETF (ONLN) tracks an index of global companies that mainly sell online or through other non-store sales channels, such as mobile or in-app purchases. The Global X E-Commerce ETF (EBIZ) provides a more defined exposure to technology companies in this space, as it primarily focuses on companies that operate online marketplace platforms or provide software or services to facilitate e-commerce, provided that they generate at least 50% of their revenues from such business operations.
Industry: Shipping and Logistics
Commerce and transportation are inextricably linked, as the goods that consumers demand need to be stored and delivered to various distribution centers around the world. As mentioned in a previous article, here, industrial real estate is a fundamentally necessary industry for the modern-day economy, particularly e-commerce. The companies that engage in the delivery of goods are well known by consumers and investments - Fedex, UPS, and DHL are staples of the logistical infrastructure that supports not only e-commerce but mass market retail.
The Pacer Industrials and Logistics ETF (SHPP) focuses on firms that derive at least 50% of their revenue from (i) transportation, such as air, ocean, and rail freight, trucking, and other courier services, (ii) software, including transportation management services and logistics software, (iii) hardware, such as robotics and forklifts, or (iv) consultation services that support global supply chains.
As e-commerce continues to grow, the business landscape will also become more robust. For investors, this means that the opportunity set will expand, allowing for greater choice in whichever aspect of the e-commerce landscape they choose to invest.
This content was originally published by our partners at ETF Central.