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How to Track the Consumer With ETFs

The XLY is the most concentrated of the trio of consumer discretionary ETFs, with 47% of its assets in its top 10 names. The expense ratio for the ETF is 0.28%. The XLY is down 11.1% this year, 6.5 percentage points behind the S&P.

The IYC is a bit more watered down at the top, holding 35% of its assets in a top 10 that has Wal-Mart in the No. 1 spot at 7.6%. The greater dilution should be expected, since the IYC holds 256 stocks. That greater diversification comes at a cost, though, as the expense ratio for the IYC is 0.60%.

The IYC is down 8.4% this year, the least of the three ETFs. That's also a somewhat surprising figure, considering that Wal-Mart shares -- often considered to be a consumer confidence indicator on their own -- have fallen over 11% year to date.

The VCR, Vanguard's entry, holds the most stocks, with 434. It is also the least concentrated, with only 31% of assets in its top 10 names. Like S&P's XLY, Vanguard shifts Wal-Mart into the consumer staples arena. The VCR, which was introduced last year, also matches the XLY's expense ratio of 0.28%. The VCR is down 9.35% for the year.

The fact that all three consumer discretionary ETFs are significantly trailing the S&P 500 could be considered a sign that in the eyes of investors, the consumer might not be feeling too good.

Another market-based signal that the consumer is growing shakier as the year progresses can be found by looking at the rising short interest for the XLY, the most heavily traded of the three ETFs, on the Amex. Short interest in the XLY jumped from 3.16 million shares in December 2004, with 5.4 days to cover, to 4.7 million shares short and 12.7 days to cover in March 2005. In April, the short interest stayed at 4.7 million, but the higher daily volume reduced the days to cover to 7.8.

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