Amazon Prime Day has arrived.
Amazon's bargain-focused two-day shopping holiday on Tuesday and Wednesday highlighted consumers' shift to buying online in a difficult year for brick-and-mortar retailers. The stock is up almost 89% year to date, driving online retail-based exchange-traded funds that hold the name.
The three ETFs with the most Amazon exposure on the market — Fidelity's MSCI Consumer Discretionary Index ETF (FDIS), ProShares' Long Online/Short Stores ETF (CLIX), and ProShares' Online Retail ETF (ONLN) — are up 38%, 85% and 93% this year, respectively. ONLN hit a 52-week high Tuesday.
Four key factors have been driving investors to e-commerce, Simeon Hyman, global investment strategist at ProShares, told CNBC's "ETF Edge" on Monday.
First, "the transition is earlier than you think. You have not missed it," he said. "Only 16% of retail sales were online in Q2. So, 84 cents were spent in brick-and-mortar stores and a lot of them were closed."
The coronavirus pandemic's boost to business also can't be discounted, Hyman said, adding that it helped push retail sales to 16% from 11%.
"Think about a quadrupling of penetration in the laggard, groceries, and also the stickiness of changes in share from folks like Chewy — which are 70% subscriptions, so, those new customers are sticky — or Etsy, which has so many more eyeballs after 15% of their sales came from masks," he said.
Third are the fundamentals, the strategist said. Walmart has clawed its way to No. 2 for online retail, but its margins have been shrinking over the last 10 years while Amazon's have doubled, he said.
"The fundamentals point towards the online folks," he said.
"Finally, if you see acceleration in performance like that, you worry about valuation. Let me give you the following surprising note: If you look at the relative valuation of our online basket, the ProShares online retail basket, and you compare that to the tech sector, we're trading at half the price-to-book [value] of three or four years ago. So, at least on a relative basis — I know it's hard to do absolute valuation these days — not as expensive as you might think."
Ed Rosenberg, senior vice president and head of ETFs at American Century, said Amazon's influence is evident even in his firm's Focused Dynamic Growth ETF (FDG), launched earlier this year.
"Even the active managers recognize that in the retail space, Amazon is the play right now," he said in the same "ETF Edge" interview.
Amazon's "downstream impact" also matters, Rosenberg said.
"If you're buying online, where else does that impact [go]?" he said. "Just using that fund as the example, one of the top 10 holdings is also Mastercard and I think you're seeing some of the downstream impact of people using credit cards and seeing growth in that area as well, whether it's Mastercard, Visa, American Express, to take advantage of what's happening with Amazon and Prime Day as well as being online."