Opinion: How to build your own ETF and avoid thousands of dollars in management fees

The stock market isn't the only thing that has made exchange traded funds a great invention for investors. They have one problem.
Those annoying fees. These fees add up.

Popular ETFs such as the iShares Expanded Technology Sector ETF IGM (+1.41%), the Invesco 500 Equal Weight Tech RYT (+10.27%) or the KraneShares CSI China Internet Exchange ETF KWEB (-3.77%), have a range of 0.4% to 0.7%.

You can invest $100,000 and earn 8% per year for 15 years. That's $317,000 before fees. What is the ETF's impact? You would give up more than $15,000. You would give up more than $15,000.

This is a lot of money. There is a way around this problem: You can buy and hold stocks to create your own ETF. You can now create your own S&P 500 ETF SPY +0.20% by using brokerages like Robinhood HOOD -1.41% or Charles Schwab SW, +0.05%.

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It is better to create ETFs that target promising areas with fewer stocks in order to keep things simple. It is important to pick the right sector. A long-term secular trend is what you want. My choice: Internet shopping.

Yes, many people now shop online. There are many more customers to convert. Bank of America predicts that global ecommerce will account for 24% of all retail sales within three years. This is up from 19% currently.

According to the bank, Ecommerce is still a major secular growth sector.

This is where globalism is crucial. Because different regions have different adoption rates. Many parts of Asia are more open to online shopping. The potential market is larger. According to Bank of America, Latin America's adoption rate is still low at 9.6% of retail sales. This compares with 27% in Asia and 18% in the U.S.

Latin America still has much to catch up. Ecommerce shares in many emerging markets are still low in certain areas, such as beauty, household goods, and pet care. Your ETF must be able to capture this catch-up growth. Mine has you covered.

I'm going to eight stocks recommended in a Bank of America note about global shopping trends. Because of the possibility of holiday season volatility due to supply chain issues or labor shortages, the bank recommends waiting until the first quarter to purchase.

It makes sense to start buying now and add any weakness. The sector is already discounted. It traded recently at an enterprise value (net credit plus market capitalization), of 4.1 times forwards sales. This compares to 5.4 times last yea and a 5-year average of 4.3.

To get an average in, I plan entry entries that include at least three to five purchases. My custom ETF can be substituted for ProShares Online Retail ETF ONLN (-0.84%), which charges 0.58%.

Before we move on to the eight names, there is another advantage to ETFs that you can do yourself. ETFs are superior to mutual funds for their fee savings and the ability to choose when you want to capital gain.

Wait, this ETF only has eight stocks. Because they have been carefully chosen to provide you with global access to various sub-segments of Ecommerce, including apparel and appliances, as well as gaming and financial services, I say yes. It's even more advantageous because you don't have to own 50 stocks within a particular sector.


Amazon.com AMZN, +2.15% is a well-known online retailer that offers cloud services, such as AWS. It is so adept at this that it has now 41% of U.S. online commerce, according to Bank of America. It is a must-have in any online shopping ETF. Justin Post, a Bank of America analyst, said that growth should be boosted next year by faster shipping times and increased product reach.


This company is the best way to take advantage of the growing popularity of online shopping in Korea. Coupang CPNG (-0.20%) is the largest ecommerce firm in Korea. It is also rapidly growing in Japan. Ecommerce in Korea grew by 19% per year between 2017 and 2020, and is not slowing. Susie Lee, a Bank of America analyst, predicts that ecommerce will account for 56% of all retail sales by 2025, an increase of 34% from last year.


Farfetch, FTCH, 0.3% is the largest global player in online luxury goods. This sector is a hot one. According to Geoffroy de Mendez, a Bank of America analyst, the sector will grow by 15%-20% per year until 2025. Farfetch's marketplace model is well-positioned, which allows for more products and less inventory risk. Farfetch has grown twice as fast than its sector over the past five year thanks to these advantages. Bank of America expects a 30% to 35% increase in annual sales over the next few years. Partnerships with Alibaba BABA (-2.86%) and Compagnie Financiere Richemont Switzerland CFRUY (-1.12%) open doors to China.


JD.com JD is the largest Chinese retailer by revenue. It has almost half a million active customers accounts. Tencent TCEHY is its partner, providing a -3.08% benefit. The retailer has access to Tencent's vast user base for online games and mobile apps Weixin, WeChat. JD.com has also partnered with Walmart. According to Eddie Leung, a Bank of America analyst, the company will experience above-average growth as it continues to win over merchants and users.


Ecommerce penetration in Latin America is low. There is plenty of room for growth in this region. It doesn't have to. This trend is supported by the growth of distribution centers, last mile hubs, and improved shipping dock facilities. MercadoLibre MELI (-2.36% ), the largest Latin American online commerce platform, continues to expand third-party pick-up and drop-off points in order to improve delivery. Robert Ford, a Bank of America analyst, said that same-day and next day delivery rates have increased significantly.


Sea SE, -2.60% offers Shopee, its ecommerce platform, throughout Asia, Brazil, and Mexico. Garena, a global publisher and game developer, is also part of the company. Digital financial services are offered under the SeaMoney name. It holds a dominant position across Asia, which indicates continued growth.


Amazon.com is the dominant U.S. ecommerce site, but brick-and-mortar stores are investing heavily to catch up. Walmart, unlike Amazon.com can use its nationwide store network to support fulfilment. Walmart's nearly 5,000-strong store network gives it an advantage in online grocery delivery and sales. A staggering 90% of Americans live within 10 miles of Walmart. 70% of Walmart stores offer same day grocery delivery. This is why Walmart is the best choice for online grocery shopping. Walmart's size gives it an advantage in port congestion and allows for competitive prices.


Targets TGT, +0.54% The ecommerce presence in the country is very small. It has worked hard to create an online business and is now growing at around 20% per year, according to Robby Ohmes, a Bank of America analyst. It can use its stores to fulfill orders, and it is making progress in same-day shipping, just like Walmart. Target should do well in the holiday season due to its weight which gives it better port access than other competitors.

MarketWatch columnist Michael Brush. He owned HOOD and AMZN, CPNG. FTCH. BABA, MELI, SE. Brush suggested HOOD and AMZN to his stock newsletter Brush Up on Stocks. Follow Brush on Twitter @mbrushstocks