Amplify Macro-Trend Commentary 2Q 2019
Online Retail Commentary
Despite a tough environment for overall retail sales, online retail continued to post positive results in Q2 2019, and the Amplify Online Retail ETF has showed similar positive results in the quarter as well as YTD.
Some of the top contributors to positive performance during the quarter were online salvage auto auction firm Copart (CPRT) on strong earnings results. Canadian online software platform company Shopify (SHOP) also had a positive quarter as its solution continues to dominate in the category. Online photo company Shutterfly (SFLY) advanced after it was announced it was being acquired by private equity firm Apollo Global Management for $1.74 billion.
Underperforming names for the period included pet pharmacy operator PetMed Express (PETS) due to rising concerns about online competition from Chewy, Amazon, and Walmart. Online retailer Land’s End (LE) also declined during the quarter, due to weaker sales.
The macro-environment for online retail continues to be positive and it remains the fastest growing segment of retail sales. According to U.S. Commerce Department data, ecommerce sales grew 12.4% year-over-year in the first quarter of 2019 versus 2.7% growth for retail sales over the same period. Online commerce now makes up 10.2% of total retail sales, up from 9.4% a year ago. U.S. consumers spent more than $536 billion online over the last year. Mobile device shopping growth continues to soar, with eMarketer estimating global mobile commerce growth of 40% year-over-year. Around the globe, online retail continues to gain share and disrupt traditional retail.
The Amplify Transformational Data Sharing (Blockchain) ETF has experienced a positive 2019 (through 6/30), thanks in part to a resurgence in digital currency and positive developments in blockchain technology.
Some of BLOK’s top performing holdings in 2Q 2019 were Opera Ltd, Kakao, GMO Internet, Yahoo Japan, and Rakuten. Rakuten’s experimentation with its e-commerce blockchain project will likely have repercussions across the e-commerce industry. Blockchain technology and cryptocurrency integration could rapidly transform how the e-commerce marketplace operates, giving rise to groundbreaking developments in payment, supply chain management, and market transparency.
Rising institutional investment is paving the way for future growth in blockchain and cryptocurrency. With Facebook’s Libra and Goldman Sachs’ indication of starting a platform, it lends credibility to blockchain as institutions adopt it and it becomes better regulated. Political and economic uncertainty has also helped boost crypto assets this year along with gold, leading some to label digital currency as the “new gold” standard.
Battery Metals & EV Commentary
The Amplify Advanced Battery Metals & Materials ETF’s diversified approach, giving it exposure to a variety of critical metals used in lithium-ion batteries (such as Graphite and Manganese), helped buffer some of the negative performance during the 2Q 2019, as these metals were less impacted by tariffs and weaker global demand concerns. The ETF’s overweight in Nickel relative to other metals also helped performance, as Lithium and Cobalt names were hit the hardest during the 2nd quarter.
Headwinds remain for battery metals and mining stocks in the second half of 2019, including bearish analyst sentiment for lithium on oversupply concerns relative to weaker global demand, and soft pricing linked to tariffs and reduced China subsidies for electric vehicles (EVs).
However, there are signs that we may be at an inflection point as many of these headwinds are dissipating, especially if a trade resolution is negotiated. EV demand is expected to ramp up over the next few years, going from 1.6mil EVs sold in 2018 to an estimated 20mil EVs by 2025 (according to Research and Markets).
Another interesting element with lithium-ion batteries (and part of the BATT ETF) is battery reuse and recycling, which stands at $61.5mil in 2018, and is estimated to reach $7.8bil by 2025 (according to Research and Markets). Finally, with limited battery metal supply coming online, metal shortages should help spur pricing and sales growth among companies in the battery metal supply chain.
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.