Beware the Wal-Mart Supplier ETF

I have no position in Wal-Mart and have no plans to buy the stock, but it is a safe bet that at some point Wal-Mart will outperform the suppliers index. The way I view these sorts of things, the index's past outperformance and any future performance vs. Wal-Mart will not be the important thing. The important thing is what role this fund could play in a diversified portfolio.

The fund, not surprisingly, is most heavily weighted toward consumer staples stocks, at roughly 48%, followed by consumer discretionary stocks, at 20% and then technology stocks (think video games) at 17%.

I was not able to find market-cap information on the FocusShares website, so by my rough calculation the average market cap is $3.3 billion, with six companies below $500 million. WSI, as a proxy for consumer stocks, is obviously going to capture the smaller part of the sector.

The fund's sales literature compares its benchmark index to the S&P Retail Index, which is composed of stores like Wal-Mart, CVS Caremark (CVS Quote - Cramer on CVS - Stock Picks)and Target(TGT Quote - Cramer on TGT - Stock Picks).

Measuring Up WSI's benchmark index (WMX) has had a low correlation to the S&P Retail Index.

Click here for larger image.

Source: focusshares.com

WSI's benchmark index has had a low correlation to the S&P Retail Index, but I don't think it is a good comparison. Since WSI is mostly consumer stocks, it makes sense to compare the fund with the Staples Sector SPDR (XLP Quote - Cramer on XLP - Stock Picks), which also owns a lot of companies that make products sold in Wal-Mart -- and to Wal-Mart's competitors.

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