ETF Winners for Jump in Consumer Spending

By Gary Gordon of ETF Update

U.S. families have slashed their monthly expenses in this Great Recession -- but not in every line item in the budget. Since the recession's inception in the fourth quarter of 2007, Americans have spent 17% more on mobile-phone equipment. They've also upped their outlays on pets by 14% and communication services (cable, Internet and wireless) by 5%.

The iShares Telecom Fund ( IYZ) and Internet Architecture HOLDRS ( IAH) exchange traded fund should have been beneficiaries of the spending spree on communication services. The Wireless HOLDRS ( WMH) could have surged on smartphone-equipment consumption.

Alas, this was not necessarily the case. Only the Internet Architecture Fund outpaced the S&P 500 since the start of the recession. Moreover, the apparent victory is entirely attributable to a 20% weighting in America's favorite culture stock, Apple ( AAPL).

One of the more amusing registrations with the Securities and Exchange Commission for new exchange traded products is the upcoming "Smart Phone ETF." Perhaps telephone equipment's resistance to the recent recession can be credited for giving rise to an index of companies that could include Apple, Samsung, LG and Research In Motion ( RIMM).

Absent the Smart Phone ETF or a Pet Lover ETF, however, there hasn't been a clear-cut ETF winner for increases in consumer spending. And while most of the decreases in consumption came at the expense of consumer-discretionary items such as household furnishings, televisions and motor vehicles, SPDR Select Consumer Discretionary ( XLY) actually outperformed the S&P 500 in the Great Recession.

The lesson? Personal consumption is merely one slice of the information pie. Try to use singular data points such as increases or decreases in spending and you'll end up overlooking such things as profitability, fundamental valuation, technical price trends, relative strength, dividend income, VIX volatility and so forth.

Along these lines, then, the iShares Global Telecom Fund ( IXP) probably hasn't looked this attractive in quite some time. Telecom has one of the highest relative-strength percentile rankings for any exchange traded investment over the past three months; IXP offers an approximate annual yield of 3.75% as well as exposure to such global players as Vodafone ( VOD).


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ETF Expert, its parent company and clients may hold positions in the ETFs, mutual funds and index funds mentioned. The company receives advertising compensation from Invesco PowerShares Capital Management and Geary Advisors. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities.

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