May 2021
Disrupting Sectors: The Case for Online Retail

Sector breakdown is a commonly used investment tool for categorization and allocation. While sector categorization provides investors a quick, shorthand method to think about the market, they can come up short in pinpointing areas of the economy marked by rapid innovation and disruption.

Here, we look under the hood at the Consumer Discretionary sector, unpack the components therein, and show why investors should not only understand the composition of the sector, but also consider targeting innovative, digital-native consumer companies built for the future, such as those in e-commerce.

Consumer Discretionary: Then and Now

Consumer Discretionary is not the most straightforward categorization of companies. You might think food or toothpaste is included, but those companies are considered Consumer Staples. The sector also does not include the majority of discretionary expenses, such as mobile phones, as those manufacturers are in the Technology sector. So, what does Consumer Discretionary include? Retail businesses, clothing, restaurants, and autos. While hotels are included, airlines are part of the Industrial sector.

From 12/31/2010 through 3/31/2021, the S&P 500 Consumer Discretionary sector has rewarded investors, generating annualized market returns of around 18% compared to the S&P 500’s returns of just above 14%. During this time, the composition of the sector, and particularly the concentration, has changed meaningfully. As of Q1 2010, the largest industry, Specialty Retail, accounted for just under 20% of the sector, while S&P 500 Internet & Direct Marketing Retail (“Internet Retail” hereafter) accounted for around 4%. As of Q1 2021, Internet Retail had grown to 33%.

The next three largest industries account for 51% of the Consumer Discretionary sector: Hotels, Restaurants & Leisure; Specialty Retail; and Automobiles. As a result, an investment in Consumer Discretionary is more sensitive to the performance of these three segments combined than that of Internet Retail. Investors should consider whether or not this is the exposure they want.

Chart 1: The proportion of industries captured in Consumer Discretionary has shifted over time.

Industries S&P Consumer Discretionary Then and Now chart

Time to Put Consumer Discretionary Back on the Shelf?

The COVID-19 pandemic presented a unique challenge for Consumer Discretionary investors. People were not traveling, many bricks-and-mortar stores were closed, and big auto purchases seemed less of a priority in a tight job market.

These dynamics put a spotlight on a discrepancy between different components within the Consumer Discretionary sector that had been years in the making. Since the end of 2010, the Internet Retail component of Consumer Discretionary pulled away from the rest of the sector with regard to sales and profitability. Sales grew almost eight times faster than that of the next-fastest-growing discretionary segment, Household Durables.

Chart 2: Over the past decade, Internet Retail pulled away from other industries.

consumer discretionary sales per share chart

Sales per share is a ratio that computes the total revenue earned per share over a designated time period. Consumer Discretionary line represents all other industries in the sector.

Often margins suffer when companies grow rapidly, but that is not always true. For instance, profit margin for Internet Retail improved with time, while other areas of Consumer Discretionary sector contracted.

Chart 3: Internet & Direct Marketing segment returned the highest profit margins within Broader Retail, the second-highest in the sector.

consumer discretionary profit margin chart

Profit margin is defined as the amount by which revenue from sales exceeds costs in a business.

Rise of the Digital Natives

The term digital natives describes companies built with a digital-first business model that use the ubiquitous nature of the Internet as their key strategic element. The retail industry can be split between the digital natives—those with business models built for digital delivery—versus traditional retailers who have bricks-and-mortar footprints and may be attempting to adapt for an increasingly online future. Comparatively, Internet Retail margins of 6.2% were the best segment among the broader S&P 500 Retail companies (Chart 3).

Chart 4: Internet Retail has seen the greatest appreciation in share price.

Consumer Discretionary Share Price Appreciation by Category Chart

Some traditional bricks-and-mortar stores have worked to maintain market share at the expense of profitability, while simultaneously trying to convert business models for a digital and on-demand marketplace. With e-commerce only accounting for 14% of total retail sales in the U.S.,1 there is still a lot of potential growth ahead. In comparison to some traditional retailers, digital natives may be better positioned to benefit from potential e-commerce growth without the need to sacrifice profit margins.

Consumer Discretionary vs. ProShares Online Retail Index

Consumer Discretionary has historically been a rewarding investment, but as the sector encapsulates a broad mix of companies, investors should ensure their Consumer Discretionary investments are giving them the exposure they want. Historically, investors have been challenged to isolate digitally native companies and dedicated e-commerce companies. Just as sector investing allowed for more precise allocations within the S&P 500, thematic investing can allow for more precise targeting within sectors, with some indexes tracking companies not available in traditional indexes.

Comparing Key Differences

ProShares Online Retail Index

Tracks retailers that principally sell online or through other non-store channels.

  • Modified market-capitalization weighted
  • May include U.S. and non-U.S. companies
  • To be included, companies must:
    • Be classified as an online retailer, e-commerce, or internet or direct marketing retailer
    • Have market capitalization of at least $500 million
  • When the index is rebalanced, no company may exceed 24% of the value of the index.

S&P 500 Consumer Discretionary Index

Comprises companies included in the S&P 500 that are classified as members of the GICS® Consumer Discretionary sector.

  • Float-adjusted market cap weighted
  • Only includes U.S. companies.
  • To be included, companies must:
    • Have an unadjusted market cap of $11.8 billion or greater and a float-adjusted market cap that is at least 50% of the unadjusted minimum market cap threshold.

Today, investors have the ability to try to focus on companies with the characteristics they may want. An example of this is the ProShares Online Retail Index, which pinpoints retailers that principally sell online or through other non-store channels, and focuses on the companies reshaping the retail space, like Amazon and Alibaba. Since November 2017, the ProShares Online Retail Index has returned 185%, compared to the 89% returned by the S&P 500 Consumer Discretionary Index for the same time period. While both indexes have had strong performance, the ProShares Online Retail Index directly benefited from the pandemic-accelerated e-commerce growth in 2020.

ProShares Online Retail v. S&P Consumer Discretionary Performance

Fund Performance and Index History
Year to Date 1-Year 3-Year Since Fund Inception Inception Date
ProShares Online Retail ETF (ONLN) NAV 3.45% 139.18% N/A 28.76% 7/13/2018
ProShares Online Retail ETF (ONLN) Market Price 3.43% 139.10% N/A 28.79% 7/13/2018
ProShares Online Retail Index 3.62% 140.73% N/A 29.43% 7/13/2018
ProShares Long Online/Short Stores ETF (CLIX) NAV -9.50% 51.67% 23.21% 24.93% 11/14/2017
ProShares Long Online/Short Stores ETF (CLIX) Market Price -9.45% 51.25% 23.29% 24.92% 11/14/2017
ProShares Long Online/Short Stores Index -9.41% 52.56% 23.43% 25.22% 11/14/2017

As of March 31, 2021. ONLN’s total operating expenses are 0.58%. CLIX’s total operating expenses are 0.65%.


High triple-digit returns were primarily achieved during favorable market conditions; an investor should not expect that such favorable conditions can be consistently achieved. A fund’s performance, especially for very short time periods, should not be the sole factor in making investment decisions.


The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost.


Current performance may be lower or higher than the performance quoted. Standardized returns and performance data current to the most recent month end may be obtained by visiting ProShares.com. Index performance is for illustrative purposes only and does not represent fund performance.


Index returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged, and one cannot invest in an index. Past performance is not a guarantee of future results.



1U.S. Department of Commerce, as of February 2021 Report.




Invest in Retail Disruption

ProShares offers ETFs that enable investors to tap into the long-term trends of retail disruption.

Lets investors potentially benefit from both the potential growth of online companies and the decline of bricks-and-mortar retailers through a long/short construction.

Tracks retailers that principally sell online or through other non-store channels.




Important Information

As of 3/31/2021, ONLN included 25.38% allocation to Amazon and 11.40% allocation to Alibaba. CLIX included long-side allocations of 25.37% to Amazon and 11.42% to Alibaba. Holdings are subject to change.

This is not intended to be investment advice. There is no guarantee forecasts will be met.

Past performance does not guarantee future results.

Indexes are unmanaged and one cannot invest in an index.

Shares are bought and sold at market price (not NAV) and are not individually redeemed from the fund. Market price returns are based upon the midpoint of the bid/ask spread at 4:00 p.m. ET (when NAV is normally determined for most funds) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns.

Any forward-looking statements herein are based on expectations of ProShare Advisors LLC at this time. ProShare Advisors LLC undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Investing is currently subject to additional risks and uncertainties related to COVID-19, including general economic, market and business conditions; changes in laws or regulations or other actions made by governmental authorities or regulatory bodies; and world economic and political developments.

Investing involves risk, including the possible loss of principal. These ProShares ETFs are non-diversified and entail certain risks, which may include risks associated with the use of derivatives (such as swap agreements, futures contracts and similar instruments), imperfect benchmark correlation, leverage and market price variance, all of which can increase volatility and decrease performance.

CLIX’s short positions are not intended to hedge the portfolio in market downturns, but rather to allow stocks with unfavorable outlooks to contribute to performance. Short positions lose value as security prices increase.

Investments in the consumer discretionary and retailing industries are subject to risks such as changes in domestic and international economies, interest rates, competition and consumer confidence; disposable household income; consumer tastes and preferences; intense competition; changing demographics; marketing and public perception; and dependence on third-party suppliers and distribution systems. Investments in smaller companies typically exhibit higher volatility.

Smaller company stocks also may trade at greater spreads or lower trading volumes, and may be less liquid than stocks of larger companies.

ONLN and CLIX invest in international investments, which may involve risks from: geographic concentration, differences in valuation and valuation times, unfavorable fluctuations in currency, differences in generally accepted accounting principles, and from economic or political instability. In emerging markets, many risks are heightened, and lower trading volumes may occur. Please see their summary and full prospectuses for a more complete description of risks. There is no guarantee any ProShares ETF will achieve its investment objective.

"Solactive AG," a registered trademark of Solactive AG, and the Solactive-ProShares Bricks and Mortar Retail Store Index have been licensed for use by ProShare Advisors LLC. Solactive AG serves as index calculation agent for the ProShares Long Online/Short Stores Index, ProShares Online Retail Index and Solactive-ProShares Bricks and Mortar Retail Store Index, and performs routine daily calculations and maintenance (e.g., reconstitution, rebalancing, and corporate actions). Solactive AG uses its best efforts to ensure that these indexes are calculated correctly. Solactive AG has no obligation to point out errors in the indexes to third parties, including but not limited to investors and/or financial intermediaries. Neither the ProShares Decline of the Retail Store ETF ("EMTY") nor the ProShares Long Online/Short Stores ETF (CLIX) are sponsored, endorsed, sold, or promoted by Solactive AG and they make no representation regarding the legality or suitability of the funds, or the advisability of investing in the funds. SOLACTIVE AG AND ITS AFFILIATES MAKE NO WARRANTIES, EXPRESS OR IMPLIED, AND BEAR NO LIABILITY WITH RESPECT TO THE INDEXES, PROSHARES, OR THE FUNDS.

Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing. This and other information can be found in their summary and full prospectuses. Read them carefully before investing.

ProShares are distributed by SEI Investments Distribution Co., which is not affiliated with the funds' advisor or sponsor.

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