ETFs in Focus as Amazon Agrees to Buy MGM Studio

The global Internet video streaming war has been heating up lately. After the $43-billion merger agreement between AT&T T and Discovery Communications DISCA earlier this month to form one of the largest global streaming players, Amazon AMZN stepped up to bolster its position in streaming video (read: ETFs in Focus on AT&T-Discovery Mega Merger Deal).

This is especially true as Amazon has agreed to acquire Metro-Goldwyn-Mayer Studios, the home of James Bond and one of the most iconic movie studios in Hollywood, for $8.45 billion. This represents Amazon’s most ambitious move into the entertainment business.

The transaction will provide the e-commerce giant access to MGM’s storied filmmaking history and a wide-ranging catalog of more than 4,000 films and 17,000 hours of TV shows that would bolster the Amazon Studios, its film and TV division, pipeline. Some of the popular film titles include 12 Angry Men, Basic Instinct, Creed, James Bond, Legally Blonde, Moonstruck, Poltergeist, Raging Bull, Robocop, Rocky, Silence of the Lambs, Stargate, Thelma & Louise, Tomb Raider, The Magnificent Seven, The Pink Panther, and The Thomas Crown Affair as well as fan favorites TV shows like The Handmaid’s Tale, Fargo, and Vikings. All these have collectively won more than 180 Academy Awards and 100 Emmys. Upcoming titles include House of Gucci, No Time to Die, Respect, The Addams Family 2, and the untitled Paul Thomas Anderson film.

The transaction is the second-largest acquisition in Amazon’s history after it agreed to buy Whole Foods in 2017 for $13.7 billion. However, it could heighten antitrust concerns for Amazon (read: Amazon Posts Biggest Profit Ever With a Huge Beat: ETFs to Tap).

The e-commerce giant has been making big investments in video content as a strategy to buoy Prime memberships, now surpassing 200 million globally. It has been vying for global streaming supremacy with Netflix (NFLX), which has more than 200 million subscribers, and Disney (DIS), which launched Disney+ 18 months ago and has rapidly added more than 100 million subscribers.

ETF Impact

The Amazon- MGM Studio deal puts the spotlight on some ETFs, which could be the best ways for investors to tap the opportunity arising from the proposed deal. Investors should keep a close eye on the movement of these ETFs over the coming weeks.

ProShares Online Retail ETF ONLN

This is the first ETF focused exclusively on retailers that principally sell online or through other non-store channels. It follows the ProShares Online Retail Index, holding 26 stocks in its basket. Amazon is the top firm accounting for about 25.4% of the portfolio. The product has amassed $1 billion in its asset base and currently trades in a moderate volume of around 86,000 shares a day on average. It charges 58 bps in annual fees from investors.

Fidelity MSCI Consumer Discretionary Index ETF FDIS

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 274 stocks in its basket. Of these, AMZN takes the top spot with 22.4% share. Internet & direct marketing retail makes up for the top sector with 26.1% share followed by specialty retail (20.2%), and hotels, restaurants & leisure (17.9%). The product has amassed $1.5 billion in its asset base while trading in a good volume of around 166,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Consumer Discretionary Select Sector SPDR Fund XLY

This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. It is the largest and most-popular product in this space, with AUM of nearly $19.4 billion and an average daily volume of around 3.7 million shares. Holding 63 securities in its basket, Amazon takes the top spot with 23.5% of assets. Internet & direct marketing retail dominates about 25.1% of the portfolio, while specialty retail, hotels restaurants and leisure and automobiles round off the next two spots with a double-digit allocation each. The fund charges 0.12% in expense ratio and has a Zacks ETF Rank #2 with a Medium risk outlook (read: US Consumer Confidence Stays Stable in May: ETFs in Spotlight).

Vanguard Consumer Discretionary ETF VCR

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index and holds 297 stocks in its basket. Of these, Amazon occupies the top position with 22.8% allocation. Internet & direct marketing retail takes the largest share at 26.7% while automobile manufacturers, restaurants and home improvement retail and round off the next two spots. VCR charges investors 10 bps in annual fees, while volume is good at nearly 112,000 shares a day. The product has managed about $5.9 billion in its asset base and carries a Zacks ETF Rank #2 with a Medium risk outlook.

VanEck Vectors Retail ETF RTH

This fund provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index. Of these, AMZN takes the top position in the basket with 20.6% share. The product has amassed $217.4 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 39,000 shares per day. RTH has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Retail ETFs in Focus Post Q1 Earnings).

iShares Evolved U.S. Discretionary Spending ETF IEDI

This is an actively managed ETF that employs data science techniques to identify companies with exposure to the discretionary spending sector. Holding 206 stocks in its basket, AMZN occupies the top position with 16.6% share. The fund has accumulated $23.7 million in its asset base and charges 18 bps in fees per year. Volume is paltry as it exchanges 3,000 shares a day, on average.