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This week may bring investors a way to get one-day delivery of great returns, according to an analysis out Monday.
Shares of Amazon.com Inc. AMZN, +5.19% are widely held throughout exchange-traded funds. But some ETFs allocate much more of their portfolio to Amazon than others do, and the company defies straightforward categorization across fund types. That’s important to keep in mind now, according to Todd Rosenbluth, head of ETF and mutual fund research for CFRA, since the CFRA team, like many analysts, think the online retailer is poised to get a bounce from this week’s Prime Day event.
“The pandemic could sustain a surge in demand from a recent global ramp-up of Amazon Prime memberships,” Rosenbluth wrote. By forcing consumers to stay at home, COVID-19 has helped accelerate shifts to digital solutions, including e-commerce – and boosted spending for the home, he noted.
“This year’s event should be further buoyed by robust sales of home-related items and consumer essentials, likely setting a new record that could eclipse the ensuing Black Friday and Cyber Monday Sales combined,” he added.
“Prime Day” is actually a two-day event, which has traditionally taken place mid-summer. Amazon postponed 2020’s event as it struggled to keep up with demand in the early months of the pandemic lockdowns. Now, some analysts think a mid-October slot could help spread out the holiday shopping season, relieving some of the pressure on logistics delivery.
With all that in mind, why own an ETF with Amazon in its portfolio, instead of just buying the stock outright?
“ETFs provide diversification benefits,” Rosenbluth told MarketWatch. “Other consumer or retail companies will also benefit from a shift to online spending.
Online sales at Walmart Inc. WMT, +1.60% surged 74% in the first quarter, the company said, as locked-down consumers shopped from home. Target TGT, +0.56% executives said online sales were up 200% in the second quarter, adding, “American consumers are adopting digital shopping like never before.”
“In addition, while CFRA is bullish on Amazon’s prospects, we acknowledge any individual stock can stumble and it is a prudent risk reduction effort to own other positions,” Rosenbluth said. That means that for investors looking to invest in Amazon-heavy funds, there are some considerations.
In his analysis, Rosenbluth notes that for all of Amazon’s history revolutionizing the retail industry, it makes up a relatively small position in some retail-specific ETFs.
Amazon is the 15th largest and 45th largest positions in the Amplify Online Retail ETF IBUY, +2.07% and the SPDR S&P Retail XRT, +0.37%, representing just 2.5% and 1.5% of their assets. Those two funds had more exposure to smaller-cap companies retailers like Etsy ETSY, +1.71% and Overstock.com OSTK, -1.75%.
And given its heft, Amazon straddles a number of sector categories, Rosenbluth points out. The company is a conglomerate of businesses that also include a massive cloud-computing enterprise, Amazon Web Services.
It makes up a roughly 10% position in the powerhouse Invesco QQQ QQQ, +3.30%, the iShares Russell Top 200 Growth IWY, +2.69%, and the Vanguard Mega Cap Growth MGK, +2.73%.
Also of note, Amazon is not considered a technology stock for the purposes of ETF or stock-market classification. Still, “iShares Expanded Tech Sector ETF IGM, +2.67% is a rare ETF with technology in the name also owning Amazon,” Rosenbluth said. And while it’s increasingly trying to making its presence felt in the consumer staples category, with grocery delivery and sales of smaller items like toothpaste and cleaning products, it is still technically a consumer discretionary company, according to S&P 500’s categorization of 11 main industry segments.
The table below shows the ETFs with the most exposure to Amazon shares.
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