ETF Targets Consumer Services

NEW YORK ( TheStreet) -- Investors typically consider Wal-Mart ( WMT) to mark the ceremonious culmination of earnings season.

However, in the days following the discount giant's release, the party has continued with a number of other consumer-related household names stepping up to the plate. The performances seen from these industry giants may prove beneficial for ETF investors who know where to look.

As the earnings showings from Wal-Mart, Home Depot ( HD) and Costco ( COST) have indicated, bigger has recently become better when it comes to targeting consumer-related companies.

In the opening months of 2012, we have witnessed an interesting shift in the once-resilient U.S. Shoppers have begun to tighten their belts. This easing, compounded with the pinch of rising fuel prices, paints a prime picture for companies that have the ability to offer goods at discounted prices.

As a recent report from the Wall Street Journal notes, while the pie has not expanded, the largest and strongest members of the retail sector appear to be gaining or recovering market share from smaller competitors thanks to their ability to appeal to cash-strapped individuals.

There are a variety of ways investors can take advantage of this shifting landscape. For example, ETFs like the Consumer Discretionary Select Sector SPDR ( XLY) lists companies like Home Depot, Macy's ( M) and Staples ( SPLS) on its roster. Meanwhile, the Consumer Staples Select Sector SPDR ( XLP) counts Wal-Mart as its third-largest holding, representing nearly 8% of its assets.

These two ETF behemoths may be suitable enough for some. But investors looking for a well-balanced one-stop-shopping approach to these top consumer names may want to consider the iShares Dow Jones U.S. Consumer Services Index Fund ( IYC).

I've spent time talking about IYC's cousin, the iShares Dow Jones U.S. Consumer Goods Index Fund ( IYK), highlighting the fund as an attractive way to gain exposure to both staples and discretionary names including Ford ( F), Procter and Gamble ( PG), and Nike ( NKE).

IYC utilizes a similar strategy. However, it homes in on the services side of the consumer pie. The fund's top holdings include names such as McDonalds ( MCD), Wal-Mart, Walt Disney ( DIS) and CVS Caremark ( CVS). In addition to these brick-and-mortar giants, the fund gives investors a taste of the blossoming online retail industry, with Amazon ( AMZN) and eBay ( EBAY) in its line-up. In total, this top 10 accounts for slightly more than one-third of the fund's total assets.

IYC's eclectic mix of cyclical and defensive-minded firms allows it to secure middle ground between staples- and discretionary-dedicated names in terms of performance.

An often overlooked product, IYC has struggled in the past to gather steam. At this time, the fund boasts $280 million in assets and has an average trading volume of nearly 56,000.

At this size, liquidity issues could potentially present an issue for those looking to quickly move in and out of a position. In reviewing IYC's underlying holdings and performance, however, it becomes clear that this fund is best suited not as a short-term trade, but rather as a small niche holding in a well-balanced portfolio. In the event that size continues to reign supreme in the consumer realm, investors holding IYC stand a strong chance of benefiting.

Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management owned the iShares Dow Jones U.S. Consumer Goods Index Fund.