Ecommerce Bubble

Global X lists e-commerce ETF

Mirae-owned Global X is listing a new ecommerce ETF that takes a first-of-a-kind global approach to this popular theme. The Global X E-commerce ETF (EBIZ) will track the Solactive E-commerce Index (EBIZ). EBIZ generates its index universe by running keyword searches to find ecommerce companies around the world.

To qualify in the index, companies in the index universe must generate at least 50% of their revenues from ecommerce. These include companies that:

  1. operate ecommerce websites;
  2. provide ecommerce software or services;
  3. generate the majority of their overall revenue from online retail.

The index will have at any given time a maximum of 40 companies and a minimum of 30, making it relatively concentrated.

Companies are market weighted, subject to a cap of 4% for the biggest companies (presumably Amazon and Alibaba) and a minimum of 0.3% weighting for the smallest companies. This helps tilt the index away from mega caps.

The index methodology is here.


Analysis – well-timed as the bubble deflates

Ecommerce companies killed it in 2017. 

So confident was everyone of the “death of retail” that the market granted ecommerce companies mega cap status and let them wander out on double-digit price-to-book ratios (“PB ratios don’t capture tech companies R&D spend”, “PB is based on dated accounting,” analysts warned). As Amazon’s stock price hit $2000 in March, its PB ratio hit 45.


Yet 2018 has proved something of a reckoning. Amazon, Ebay, Shopify, Alibaba, ML are down -25% from their mid-year peaks. The Fed has indicated it will defy Trump and carry on tightening. This means there will be less credit growth and less money lying around to throw at growth companies. It looks like the froth is coming out of the valuations. (The graph below is from Bank of America’s Chief Investment Strategist Michael Hartnett).

In a way, this makes Global X’s listing quite well timed. Investors who think ecommerce stocks have come down too far can use EBIZ to buy the dip. And as this is the first ecommerce ETF that is truly global and there clearly is demand it’s a good addition to the US ETF landscape.