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Expertise Behind BLOK

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The Great Retail Disruption

Online Retailers Shine as Brick & Mortar Fades

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Hedge Your Dividends with this Dividend+Option ETF

Q&A with Kevin Simpson, Capital Wealth Planning, LLC

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Clicks Over Bricks: The Online Retail Trend

by Jane Edmondson, EQM Indexes

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  ETF EDUCATION

A Year in the Life of Online Retail

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  AMPLIFY BLOG

2018 Holiday Shopping Season Outlook

by Christian Magoon, CEO of Amplify ETFs

The most important time of the year for brick and mortar and online retailers is approaching quickly: the holiday shopping season. When it comes to retail sales, the state of the consumer is key. Unemployment, wages, inflation, consumer sentiment and specific macro-economic risks are all ingredients that influence consumer spending during the holiday shopping season. Let’s take a closer look at these data points to understand what the holiday shopping season of 2018 could shape up to be.

UNEMPLOYMENT, WAGES & INFLATION

A low unemployment rate means there is a larger gross potential audience of wage-earning consumers to purchase goods. The U.S. Labor Department’s most recent Monthly Employment report released early October showed that unemployment fell to near a 49-year low of just 3.7%. When considering unemployment, it’s crucial to consider the direction of wages at the same time. Rising wages, especially those that are not outpaced by inflation, can create tailwinds for consumer spending. According to the same U.S. Labor Department report, wages in the form of average hourly earnings grew in September by 0.3%, which equals a 2.8% growth rate in wages year over year. In comparison to inflation, which is estimated to be at 2.7%, wage growth is keeping pace with inflation. These three data points - unemployment, wages and inflation - all seem to point to a consumer that is likely to be in a position to spend more, not less, this holiday season.

CONSUMER CONFIDENCE & SENTIMENT

While economic statistics are one way to assess the consumer, another way is to gauge the attitude of the consumer through measures of consumer confidence & sentiment. Research shows that emotions like fear and greed heavily influence buying and selling decisions. Let’s examine two of the most followed measures of consumer attitudes: The Consumer Confidence Survey and the University of Michigan’s Survey of Consumers.

Year-to-date through the end of June, IBUY handily outperformed both the S&P 500 Index and NASDAQ 100 Index. Below is the performance comparison chart of IBUY versus the two well-known indexes.

The Consumer Confidence Survey® reflects prevailing business conditions and developments for the months ahead. This monthly report details consumer attitudes and buying intentions, with data available by age, income, and region. The September 2018 reading of this survey showed consumer confidence at an 18-year high according to the official news release. “Consumers’ assessment of current conditions remains extremely favorable, bolstered by a strong economy and robust job growth,” said the Director of Economic Indicators at The Conference Board, which is the publisher of the Consumer Conference Index.

The University of Michigan’s Survey of Consumers is a monthly survey of U.S. consumer confidence levels conducted by the University of Michigan. It is based on telephone surveys that gather information on consumer expectations regarding the overall economy. The results form the Michigan Consumer Sentiment Index. According to the University’s official survey comments, “consumer sentiment remained at very favorable levels in September, with the Index topping 100.0 for only the third time since January 2004. Most of the September gain was among households with incomes in the bottom third, whose index value of 96.3 was the highest since November 2000. In contrast, the Sentiment Index among households with incomes in the top third lost a total of 8.1% during the past seven months since reaching its cyclical peak of 111.9 in February 2018. This divergence across income subgroups has been observed in past economic cycles and indicates that the expansion has now benefitted nearly all population subgroups. All households held very optimistic expectations for improved personal finances in the year ahead, the most favorable financial prospects since 2004.”

Clearly both surveys show a healthy consumer outlook, which should be bullish for 2018 holiday retail sales.

MACRO ECONOMIC RISKS

Stepping back from economic statistics and consumer outlook, there are certainly other factors that will likely influence consumer spending. We believe two that are important to consider given their potential consumer impact are gasoline prices and tariffs.

In a nation with significant automobile usage, higher gasoline prices mean less money to spend on other goods. According to AAA, fall season gas prices in the U.S. have not been this high since 2014. According to AAA, “Crude oil accounts for half of the retail pump price and crude is selling at some of the highest price points in four years. That means fall and year-end prices are going to be unseasonably expensive.” Crude oil prices are being driven higher by geopolitical tensions with Iran and Venezuela, along with stronger demand for oil due a healthier global economy. A gas price shock is a consumer spending risk to consider going into year end, especially for low wage earners as gasoline purchases account for a larger percentage of spending.

The Trump administration has made foreign trade - and more specifically tariffs on trade - one of the most watched issues of 2018. Whether it be renegotiating the NAFTA agreement with Mexico and Canada or the ongoing negotiation on trade with China, clearly the issue of tariffs is front and center. In fact, The University of Michigan’s Survey of Consumers highlighted trade as the only negative concern by consumers in their latest results. According to the official survey commentary, "The single issue that was cited as having a potential negative impact on the economy was tariffs. Concerns about the negative impact of tariffs were cited by nearly one-third of all consumers in September.” We believe extensive tariffs on Chinese and U.S. goods would likely create a slowdown in consumer spending due to higher costs and perhaps less availability of the affected goods. This is clearly a risk to consumer spending, but one that is more likely to occur in 2019 since most retailers already have secured 2018 goods in anticipation of the holiday season. Still, this issue appears to be a concern on a significant amount of consumers’ minds.

Record Breaking Holiday Shopping in 2018?

Economic data combined with consumer surveys appear to point to a robust 2018 holiday shopping season, but could it be a record breaker?

According to the National Retail Federation (NRF) 2018 holiday retail sales are expected to hit a new all-time high, eclipsing 2017’s record by an estimated 4.3 - 4.8%. According to the NRF, "Last year’s strong results were thanks to growing wages, stronger employment and higher confidence, complemented by anticipation of tax cuts that led consumers to spend more than expected,” NRF Chief Economist Jack Kleinhenz said. “With this year’s forecast, we continue to see strong momentum from consumers as they do the heavy lifting in supporting our economy. The combination of increased job creation, improved wages, tamed inflation and an increase in net worth all provide the capacity and the confidence to spend.”

Here’s a NRF graph showing 2018’s forecast relative to previous year’s results.

In our view, the 2018 holiday shopping season should benefit both brick-and-mortar and online retail stocks. Investors may want to review their current portfolio allocations to this market segment which appears to be setting up for strong underlying business results.

Online Retail Mid-Year Outlook

The trend of consumers increasingly buying online continued to occur in the first half of 2018.

by Christian Magoon, CEO of Amplify ETFs

The trend of consumers increasingly buying online continued to occur in the first half of 2018. The U.S. Department of Commerce Quarterly Retail E-Commerce Sales Report issued on May 17, 2018 showed online retail sales growing 16.4% year over year. This compares to total retail sales growing 4.5% during the same period. Clearly online retail is where the growth continues to be in this sector. However, despite strong relative growth, online sales accounted for just 9.5% of total U.S. retail sales according to the U.S. Department of Commerce. Thus, we believe consumer migration to online retailers is still in its early stages, and we believe online market share could eventually rise to 20% of total U.S. retail sales over the next 5-7 years based on current trends.

Online Retail Stock Performance

The first half of 2018 has been another solid period of performance for online retail stocks as evidenced by the Amplify Online Retail ETF (IBUY), which returned 25.23% YTD as of 6/30/18. Also, IBUY returned 40.88% for investors in 2017. IBUY seeks investment results that generally correspond to the EQM Online Retail Index (IBUYXT).

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. The Fund’s gross expense ratio is 0.65%.

Year-to-date through the end of June, IBUY handily outperformed both the S&P 500 Index and NASDAQ 100 Index. Below is the performance comparison chart of IBUY versus the two well-known indexes.

Companies Driving Performance

The EQM Online Retail Index utilizes an equal weighted approach to the stocks it holds in both its U.S. and non-U.S. based sleeves which are weighted 75% and 25% respectively. This approach means that the index is not overly concentrated in a single stock due to market capitalization, and that smaller companies can have the same impact on the portfolio as larger companies. In the first half of 2018, we saw some of the benefits of this approach, with both smaller companies and ones based outside the U.S. as top performers.

Many people only think of Amazon when it comes to online retail, but as the list above illustrates there are other companies generating attractive returns as well. In fact, in 2017, Amazon was just the 15th best performing holding in the EQM Online Retail Index.

Most Talked About Development in Online Retail

In late June of 2018, the U.S. Supreme Court ruled that states can force online retailers to collect sales tax on transactions even if the online retailer does not have a physical presence in that state. The much-anticipated ruling sets up more than 10,000 state and local taxing authorities to collect taxes from online retailers. Implementing the various tax rates, tax holidays and tax exempt items across these jurisdictions will be complicated. Thus, an effort is already underway for national legislation to be passed through Congress to standardize state and local sales tax for online transactions.

We believe this ruling gives an advantage to publicly-traded online retail and marketplace companies, as they will be able to spend the time and money to developing a solution to collect these taxes. This ruling may force many small businesses who can’t afford to develop their own tax collection solution to partner with online retailers or join marketplaces to fulfill tax requirements on their sales.

It’s notable that the Supreme Court ruling had no significant impact on the stock prices of the diverse group of online retailers. Perhaps this is due to the many other factors that appear to be attracting consumers to shop online, beyond potentially avoiding the payment of state and local sales taxes. Nevertheless, this issue will be one to watch over the next year.

As an aside, when was the last time you heard someone buy online to avoid state and local sales tax? This may be a reason for some consumers but personal experience and a survey by ecommerce research group eMarketer, shows plenty of other reasons why internet shoppers like to shop online versus in-store.

Mergers & Acquisitions Activity and Fundamental Strength

A number of online retail stocks in the EQM Online Retail Index saw announcements like partnerships, acquisitions and improved revenue estimates over the past six months. This is a trend to watch, as this activity illustrates the dynamic nature of many of these companies as they mature and begin to be able to partner, acquire or manage their business more effectively. Here’s a list of these lesser known companies below.

Shutterfly: After the close of the market on January 30th, 2017 Shutterfly announced its acquisition of the largest school photo company in the US, a privately held firm called LifeTouch. Shutterfly shares gained more than 35% the very next trading day based on that news being actionable.

Grub Hub: On Feb 8, 2018 shares of Grub Hub gained more than 25% on an announced partnership with Yum Brands, under which Yum acquired $200 million in Grub Hub shares. In addition, Grub Hub became the exclusive online ordering, pickup and delivery platform for KFC, Pizza Hut and Taco Bell.

Ocado: On May 17, 2018 shares of Ocado gained more than 45% on an announced partnership with Kroger in which Kroger will use Ocado’s online ordering technology, automated fulfillment solutions and delivery logistics in the grocery business.

Stitch Fix: On June 8th, 2018 shares of Stitch Fix rose more than 25% after it announced stronger than expected financial results for its fiscal third quarter.

ETSY: On June 14th, 2018 shares of Etsy gained more than 28% when it announced an increase in platform fees that in turn boosted its revenue outlook for the year.

Outlook for Online Retail Stocks

Looking at the second half of 2018, we expect continued online retail market share and sales growth, additional brick and mortar store closures, and healthy consumer confidence being beneficial for online retail stocks. In addition, we should see more strategic partnerships and acquisitions as both brick and mortar retailers and companies from other industries seek to accelerate their e-commerce presence.

It’s important to note the second half of the year tends to be strong seasonally for online retailers for a variety of reasons. Amazon’s 30-hour Prime Day in July has created demand in a historically quiet retail month for both Amazon and many other retailers. Then the traditional back-to-school shopping season begins in early August and usually lasts well into September. In early November, Singles’ Day in China takes place which generates more sales than Black Friday and Cyber Monday combined. Finally, the all-important U.S. holiday shopping season kicks off in late November. This shopping fest includes the Thanksgiving holiday, Black Friday and Cyber Monday and doesn’t really end until after Christmas.

Our early expectations for the 2018 holiday shopping season are elevated due to leading indicators like high consumer confidence and the historically low unemployment rate. While 2017 overall holiday retail sales rose 5.5% over 2016, we think a higher growth rate could be in store for 2018. This would be very positive for online retailers; especially as online retailers have historically experienced a higher than average market-share of total U.S. retail sales during the holiday season.

Here’s a timeline highlighting the key online shopping holidays, many of which occur in the second half of the year.

Risks to Monitor

There are a variety of business specific risks to monitor when it comes online retail stocks. A trade war between the U.S. and major countries like China would impact companies selling or being supplied goods across borders. This could also dampen consumer confidence due to a rise in prices. Another risk factor to assess is global sentiment towards equities. Should equity sentiment turn defensive, the growth-oriented nature of online retail stocks could make them less attractive versus more defensive equities in sectors like Utilities or Consumer Staples. Additional specific risks to the stock prices of online retailers to consider include the pending U.S. state and local tax issue and the overall health of the world economy, as many online retailers sell in a variety of countries.


Important Disclosures

The EQM Online Retail Index seeks to measure the performance of global equity securities of publicly traded companies with significant revenue from the online retail business. The Index methodology is designed to result in a portfolio that has the potential for capital appreciation. The Adviser and Sub-Adviser believe that companies with significant online retail revenues may be best positioned to take advantage of growth in online retail sales and shoppers versus companies with less significant online retail revenues. Eligible constituents derive at least 70% of revenues from online and/or virtual business transactions (as opposed to brick and mortar and/or in-store transactions) in one of three online retail business segments: traditional online retail; online travel; and online marketplace. An investment cannot be made directly in an index.

The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks.

Carefully consider the Funds' investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Funds' prospectuses, which may be obtained by calling 855-267-3837. Read the prospectus carefully before investing.

Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. BLOK (The “Fund”) is subject to management risk because it is actively managed. Narrowly focused investments typically exhibit higher volatility. A portfolio concentrated in a single industry, such as companies actively engaged in blockchain technology, makes it vulnerable to factors affecting the companies. The Fund may face more risks than if it were diversified broadly over numerous industries or sectors. Blockchain technology may never develop optimized transactional processes that lead to realized economic returns for any company in which the Fund invests. The Fund will invest at least 80% of the Fund’s net assets in equity securities of companies actively involved in the development and utilization of blockchain technologies. Such investments may be subject to the following risks: the technology is new and many of its uses may be untested; theft, loss or destruction; competing platforms and technologies; cybersecurity incidents; developmental risk; lack of liquid markets; possible manipulation of blockchain-based assets; lack of regulation; third party product defects or vulnerabilities; reliance on the Internet; and line of business risk. The investable universe may include companies that partner with or invest in other companies that are engaged in transformational data sharing or companies that participate in blockchain industry consortiums. The Fund will invest in the securities of foreign companies. Securities issued by foreign companies present risks beyond those of securities of U.S. issuers.

References to other funds should not be interpreted as an offer of these securities.

Diversification does not assure a profit or protect against a loss in a declining market.

Amplify ETFs are distributed by Quasar Distributors LLC.

Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.

IBUY ETF Top 10 Holdings (as of 6/30/18)

Carvana (CVNA) 4.97%

Wayfair (W) 4.49%

TripAdvisor (TRIP) 4.46%

Lands’ End (LE) 4.26%

Etsy (ETSY) 4.18%

PetMed Express (PETS) 3.97%

Stitch Fix (SFIX) 3.76%

Netflix (NFLX) 3.74%

IAC/Interactive (IAC) 3.49%

Nutrisystem (NTRI) 3.44%

Inside ETFs 2018

A behind-the-scenes look at the 2018 Inside ETFs conference

by Christian Magoon, CEO of Amplify ETFs
and Brian Giere, Director of Marketing, Amplify ETFs

The world’s largest ETF conference took place again this January, and Amplify was happy to participate by speaking on two panels and exhibiting at the conference. This was the 11th year for the conference, and it seems to grow in attendees (2,400), ETF sponsors, and products each year. We believe this conference is a great reflection of the growth of the ETF industry overall. Here are our key takeaways from the conference:

Market Sentiment

We noticed overall bullishness about the equity markets from the attendees, but their sentiment was balanced with a healthy dose of caution and context. There was obvious positivity about how equities performed in 2017, but also the perspective that the year had abnormally low volatility. Overall, it was refreshing to see that most attendees had good perspective about the underlying economy and that some volatility is good for the markets.

ETFs Becoming Mainstream

It’s easy to affirm the growth of ETFs while at the world’s largest ETF conference, but there were some observations that emphasized the point that they are becoming more ‘mainstream.’ From the numerous media outlets, to the advertising, to the speakers (i.e. Quincy Jones, Gen. Stanley McChrystal, Serena Williams), it reflects the growing popularity of ETFs. However, the average retail investor may not be able to explain what an ETF is, so the role of education continues to be vital as ETFs become more mainstream.

Implementation of ETFs

Although the growth and adoption of ETFs has accelerated, the need for education is constant. We observed that many of the financial advisors who attended Inside ETFs this year were well-versed in ETF basics and even up on the recent trends and themes in the industry. But the primary feedback we received revolved around how advisors should use ETFs in their businesses within their clients’ portfolios. This is “next-level” education where advisors need to determine how and where ETFs fit in their portfolios. We noticed that a number of the panels and speakers addressed this need at the conference.

Cryptocurrencies & Blockchain Technology

We had to bring it up, right?! Just as this topic has grown in popularity overall, it seemed to be a recurring theme in most of the sessions and panels. The interesting thing is that there aren’t any Bitcoin or cryptocurrency ETFs currently available, although the news of the filed products being halted from launching, or withdrawn, most likely was the reason it was a hot topic. Of course, Amplify offers an ETF – BLOK – that invests at least 80% of its net assets in equity securities of companies actively involved in the development and utilization of blockchain technologies (it does not invest in cryptocurrencies or blockchain technology directly).

Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. BLOK (The “Fund”) is subject to management risk because it is actively managed. Narrowly focused investments typically exhibit higher volatility. A portfolio concentrated in a single industry, such as companies actively engaged in blockchain technology, makes it vulnerable to factors affecting the companies. The Fund may face more risks than if it were diversified broadly over numerous industries or sectors. Blockchain technology may never develop optimized transactional processes that lead to realized economic returns for any company in which the Fund invests. The Fund will invest at least 80% of the Fund’s net assets in equity securities of companies actively involved in the development and utilization of blockchain technologies. Such investments may be subject to the following risks: the technology is new and many of its uses may be untested; theft, loss or destruction; competing platforms and technologies; cybersecurity incidents; developmental risk; lack of liquid markets; possible manipulation of blockchain-based assets; lack of regulation; third party product defects or vulnerabilities; reliance on the Internet; and line of business risk. The investable universe may include companies that partner with or invest in other companies that are engaged in transformational data sharing or companies that participate in blockchain industry consortiums. The Fund will invest in the securities of foreign companies. Securities issued by foreign companies present risks beyond those of securities of U.S. issuers.

WHY ETF TRANSPARENCY MATTERS NOW

An important ETF characteristic during market volatility

By Christian Magoon

Whenever increased market uncertainty occurs, ETF investors should utilize a feature most ETFs offer: portfolio transparency. The majority of ETFs reveal their exact portfolio holdings on a daily basis via their official website. This real time portfolio transparency allows investors to better understand and address portfolio specific risks. While important during times of market volatility, portfolio transparency is just as valuable to any investor seeking to diversify and follow a long-term asset allocation plan.

A transparent portfolio provides the foundation on which to build both proper portfolio diversification and asset allocation. Proper diversification helps to reduce the concentration risk of an investment portfolio. When an investor seeks to diversify, it is important to know exactly what is owned inside that portfolio. Constant portfolio transparency allows for more accurate portfolio data and decisions. In another related effort to address portfolio risk, asset allocation is a method that tailors a portfolio to best fit an investor’s risk tolerance and time horizon. Predictably the more frequent the transparency of the portfolio, the more precise the asset allocation can be.

Accurately implementing and monitoring a portfolio’s asset allocation and diversification is important in all types of market environments. The portfolio transparency of ETFs provides investors with current and complete information to base crucial decisions on. Should market volatility – or risk - increase in 2018, ETF transparency will only matter more to investors as they seek to understand, position and monitor portfolios in light of marketplace risks.

Opinions expressed are subject to change at any time, are not guaranteed and should not be considered investment advice. Diversification does not assure a profit or protect against a loss in a declining market.

Alpha is a measure of investment performance against a market index used as a benchmark.

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. One cannot invest directly in an index.

Past performance does not guarantee future results.