New ETFs Bet Against the Shopping Mall by Shorting Traditional Retail Stores

  • ProShare Advisors to sell 3 funds targeting retail industry
  • Speculation on mall failures has grown increasingly crowded

Wagering on the demise of the American mall is about to get a whole lot easier using exchange-traded funds.

A trio of new ETFs proposed by ProShare Advisors LLC take positions against retailers that are most likely to suffer from the dominance of internet shopping, “bricks and mortar” companies that rely on a physical store to sell their wares, regulatory filings show. Two of the funds will use leverage to boost the returns on their bets against the industry, while the other will short traditional retailers and go long firms that stand to benefit most from the boom in electronic commerce, according to the documents.

Until now, equity investors looking to play the future of retailing could do so through single stocks, real estate investment trusts or a handful of existing ETFs that lump together physical and online retailers. Or they could plunge into the complex world of commercial mortgage-backed debt. But both routes have become well-trodden and expensive, leaving investors keen for a more focused alternative.

“Clearly people want to short it so they’re giving them that, and then also mom and pop are talking about this -- you read every week in the newspaper about Amazon and the death of the mall,” said Eric Balchunas, an ETF analyst for Bloomberg Intelligence. “This is a story that’s going to play out for the next decade at least, and everybody can understand it.”

State Street Corp.’s SPDR S&P Retail ETF -- which includes big box chains like Sears Holdings Corp. and Staples Inc. among its 10 largest holdings -- has lost more than 9 percent this year, data compiled by Bloomberg show. Bets against that fund reached 131 percent of shares outstanding last month, according to Markit data. By contrast, the Amplify Online Retail ETF has gained 30 percent this year and 39 percent since its inception in April 2016.

The ProShares UltraShort Bricks and Mortar Retail fund and ProShares UltraPro Short Bricks and Mortar Retail fund will seek to use derivatives to generate daily returns of two or three times the inverse of an index comprising the most at-risk U.S. retailers, the filings show. They are not suitable for all investors because of the riskiness of using leverage to get their desired results, according to the documents.

Meanwhile, the ProShares Long Online Short Bricks & Mortar Retail ETF will track an equal-weighted benchmark that includes U.S. and overseas stocks, the filings show. The committee managing the index for Bethesda, Maryland-based ProShares will evaluate data such as revenue from online sales and the square footage of physical stores to determine any changes to the composition.

“These potential ETFs will help to provide an avenue to put money to work,” said Todd Rosenbluth, director of ETFs and mutual funds at CFRA Research, an independent research provider. “For anybody who thinks that the ETF market place is too crowded, this is a good example of ‘not yet.’”

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