ProShares unveils inverse ETFs targeting bricks-and-mortar retailers

Nov 16th, 2017 | By | Category: Alternatives / Multi-Asset

ProShares has launched the ProShares Decline of the Retail Store ETF (EMTY) on NYSE Arca, the first ETF specifically designed to benefit from the decline of US-listed bricks-and-mortar retail firms. Investors looking for an alternative play on this theme – simultaneously capturing the increasing popularity of online retailing – may wish to consider the ProShares Long Online/Short Stores ETF (CLIX US) which also launched today.

ProShares Inverse Retailers ETF

The Macy’s department store in Houston, Texas, was demolished in September 2013.

“Investors are witnessing signs of trouble in the malls and falling stock prices in the markets,” said Michael L. Sapir, co‑founder and CEO of ProShare Advisors. “For the first time, investors can turn these trends into a potential investment opportunity through an ETF.”

EMTY provides daily inverse exposure to the Solactive-ProShares Bricks and Mortar Retail Store Index, allowing investors to benefit from further erosion of the value of retailers that rely principally on in-store sales. To be eligible for inclusion, constituents must have a minimum market capitalization of $500 million, must have generated 50% of revenues for the previous fiscal year from retail operations, and must have generated more than 75% of its retail revenues from in-store sales.

The index is composed exclusively of traditional retailers – such as department stores or supermarkets – and currently has 56 constituents which are equally weighted on a monthly rebalancing schedule while index reconstitution occurs annually in June. Current well-known names in the index include retailers such as Barnes & Noble, The Gap, Macy’s, Kroger and Best Buy.

Over 30 major retailers have declared bankruptcy over the past three years, nearly two-thirds of those in 2017, including Toys “R” Us, RadioShack and Payless. According to ProShares, the pressure is expected to continue with some analysts predicting that online sales growth will outpace bricks and mortar retailers three to one by 2020.

“Retail is being profoundly disrupted by shoppers moving online, oversaturated markets and changing consumer behaviours,” added Sapir. “While some retailers that rely on in-store sales may be able to adapt, we believe those will be a minority, and that the long-term trend is against these companies and in favour of EMTY’s strategy.”

The fund has a total expense ratio (TER) of 0.65%.

CLIX, on the other hand, tracks the ProShares Long Online/Short Stores Index, combining a 100% long portfolio of online and non-traditional retailers with a 50% short position in bricks-and-mortar retailers. The fund thereby provides investors with the opportunity arising from both the potential growth of online companies and the decline of bricks-and-mortar retailers.

The ProShares Long Online/Short Stores Index combines two specialized retail indices. It includes a 100% long position in the ProShares Online Retail Index and a 50% short position in the Solactive-ProShares Bricks and Mortar Retail Store Index. The long and short positions are rebalanced monthly.

Retailers in the ProShares Online Retail Index include both US and non-US companies. To be eligible, a retailer must be classified as an online retailer, an e-commerce retailer, or an internet or direct marketing retailer, according to standard industry classification systems, and have a market capitalization of at least $500 million.

When the index is rebalanced, it is weighted so that no company may exceed 24% of the value of the index, the sum of companies individually weighing more than 4.5% may not exceed 50% of the value of the index, and the total weight of all non-US companies will be capped at 25%.

Sapir notes: “With CLIX, investors not only receive the investment potential of online retailers like Amazon and Alibaba but also have the possibility of additional return from short exposure to traditional retailers. CLIX’s 50% net exposure to the equity markets may result in less volatility than typical long-only equity strategies.”

CLIX also has a TER of 0.65%.

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