Amazon’s Reach Has Fund Managers Searching For Amazon-Safe Investments

Amazon.com may have started out as a purveyor of books but its massive expansion into everything retail is leaving some U.S.-based fund managers scrambling to find retail companies to invest in that won’t eventually be upended by the eCommerce giant.

“Retail is a landmine and you just don’t know who is going to be disrupted by Amazon. You are seeing money rotate into names where people feel comfortable with companies that won’t be Amazon’ed away,” said Scott Moore, a portfolio manager at Buffalo Funds in an interview with Reuters.

Consider this for one piece of evidence: For the last three years Amazon has been getting into the high-end clothing market, and today has close to 40 percent market share. That commanding market share is bigger than the 21 top retailers combined. What’s more, Cowen and Co. expects Amazon to be the biggest apparel retailer by 2017, pushing out Macy’s Inc.

With Amazon trumping or expected to trump all of the retailers in its wake, fund managers are turning to retailers that aren’t in Amazon’s direct line of sight, such as home improvements company Home Depot. After all, in lots of cases it’s going to be cheaper to purchase kitchen cabinets from Home Depot than to pay to have them shipped from an online retailer. Not to mention consumers are more apt to make a quick trip to Home Depot for extra nails than to place an order online.

According to data from Morningstar, large cap actively managed mutual funds now include more restaurant, home improvement and leisure companies in their portfolios than at any other time in the past five years. At the same time, the fund managers have lowered their exposure to apparel and department store operators. Meanwhile, large cap mutual funds that own Amazon stock have increased 15 percent during the last three years.

Additionally, a recent UPS Pulse of the Online Shopper study found that 51 percent of items are bought via digital platforms. Still, there are many physical retailers that are actively innovating, both online and in-store, to fight back against the eCommerce juggernaut.

And not every fund manager is running for the hills when it comes to retailer stocks. Some are betting Sears will shut down soon and when it does, sales at rivals including JC Penney will see an increase in business.