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Online/e-Commerce Inflation at Record High: ETFs to Win

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With COVID-19 taking control of our lives for almost two years, human dependence on online activities has grown manifold. The new normal – stay-at-home – led to this increased tech activity and e-Commerce inflation. Adobe data revealed that the latest online inflation data for the month of November 2021 hit a record high at a 3.5% year-over-year increase while prices are down 2% sequentially due to holiday discounts.

The year-over-year (YoY) inflation or November represents the highest increase since 2014 and the 18th successive month of YoY online inflation. “Ongoing supply chain constraints and durable consumer demand have underpinned the record high inflation in e-commerce,” said Patrick Brown, vice president of growth marketing and insights, Adobe. However, prices are still cheaper than offline for some specific categories.

In November 2021, 11 of the 18 categories tracked by the Adobe Digital Price Index witnessed year-over-year price rises. Apparel prices topped the list of inflation, while price drops were observed in seven categories: electronics, personal care products, office supplies, jewelry, books, toys and computers. On a month-over-month basis, all but four categories (groceries, pet products, tools/home improvement and medical equipment/supplies) saw a decline in prices thanks to holiday discounts.

Against this backdrop, below we highlight a few ETFs that are likely to gain from the trend. The ETF picks are based on the consumer demand pattern.

ETFs in Focus

ProShares Online Retail ETF (ONLN - Free Report)

ProShares Online Retail ETF tracks retailers that principally sell online or through other non-store channels. ONLN is heavy on Amazon and Alibaba.

Global X E-commerce ETF (EBIZ - Free Report)

The underlying Solactive E-commerce Index that Global X E-commerce ETF provides exposure to exchange-listed companies that are positioned to benefit from the increased adoption of e-commerce as a distribution model. Etsy, Williams-Sonoma and Expedia are the top three stocks of the fund.

SPDR S&P Retail ETF (XRT - Free Report)

The Zacks Rank #1 (Strong Buy) ETF puts 21% weight in Apparel. Apparel prices jumped 17.3% online in November. Since 2014, only three months (August 2016, January 2020, February 2020) recorded apparel prices rise online by 9% or more YoY. For the past eight months, Adobe data showed that online prices for apparel have risen by over 9% year over year.

Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS - Free Report)

Prices for groceries are up 3.9% YoY and up 0.6% MoM. Online prices have increased on an annual basis for 22 months, moving hand in hand with the Consumer Price Index. Food products account for about 40.9% of the fund, followed by beverages (18.8%), household products (16.1%) and Food and Staples Retailing (15.53%).

iShares U.S. Medical Devices ETF (IHI - Free Report)

Year-over-year inflation for medical equipment & supplies were 5.71% in November while monthly inflation was 2.11%. This makes a IHI a right bet at the current scenario.

VanEck Retail ETF (RTH - Free Report)

Tools and home improvement category recorded a year-over-year inflation of 6.93% and a sequential inflation of 0.50%. Home Depot (HD - Free Report) and Lowe’s Companies Inc. (LOW - Free Report) – two major home improvement retailers – have about 20% exposure jointly to RTH.

ProShares Pet Care ETF (PAWZ - Free Report)

Year-over-year inflation for pet products were 3.53% in November while monthly inflation was 0.56%. This puts focus on PAWZ which consists of U.S. and International companies that potentially stand to benefit from interest in, and resources spent on, pet ownership.

Industrial Select Sector SPDR Fund (XLI - Free Report)

Appliances prices were up 4% YoY. The category has seen 19 months of online inflation in a row. Prices for this category have stayed strong since 2020.