Consumer ETFs to weather the storm

These funds offer stability in turbulent times by focusing on the US recovery through consumer staples.

By TheStreet Staff Mar 17, 2011 10:24AM

Image: Arrow Down Umbrella (© Photographers Choice RF/SuperStock)By Don Dion, TheStreet


In recent months, investor confidence has been tested by a battery of disconcerting international events.


While it is natural to keep a close watch on these gripping news stories, it's also important to avoid letting day-to-day headlines influence your long-term investing success. There are plenty of fears out there. However, bending and swaying with daily and hourly headwinds is a surefire way to increase confusion, which may lead to losses.


Investing in this trying economic environment requires a careful eye and a level head. By gearing up with a strong, well-diversified portfolio, investors can alleviate some of the anxieties that come with these volatile times.


The U.S. consumer, for instance, continues to be a pocket of strength amid all of the turmoil. As pointed out by The Wall Street Journal, individual households have made great strides in paring their debt loads. According to the report, total household debt in the U.S. stands at levels last seen in late 2004.

With their debt burdens easing, consumers are becoming increasingly willing to open their wallets, as evidenced last week, when the February retail sales report showed a rise of 1% from the previous month.


On numerous occasions, I have encouraged investors to set aside a portion of their portfolio for funds directed toward tracking the ongoing domestic consumer recovery. Although we have seen a global shakeup in recent months, this thesis still holds.


Investors looking for a way to tap into this region of the market can turn to a number of ETFs. Funds such as the SPDR S&P Retail ETF (XRT) or the First Trust Dow Jones Internet Index Fund (FDN) provide two unique ways investors can gain exposure to a wide range of retailers.


More conservative investors, on the other hand, may find the stability of the Consumer Staples Select Sector SPDR (XLP) to their liking. XLP boasts exposure to companies responsible for providing individuals with the essentials. Top holdings include household names such as Procter & Gamble (PG), Wal-Mart (WMT) and Kraft Foods (KFT).


The iShares Dow Jones Consumer Goods Index Fund (IYK) spreads its assets across a wide range of companies in staples and discretionaries. This broad-based take on the consumer industry allows investors to profit from companies responsible for satisfying individuals' demand for both needs and wants.


The political unrest sweeping major regions of the Middle East and North Africa, the debt crisis facing the E.U. and, more recently, the tragedy facing Japan have made the international arena exciting to watch, though difficult to navigate from an investing perspective.

As the media and market commentators remain focused on tumultuous headwinds abroad, investors may find welcome relief here on our home shores. The U.S. recovery continues to hold promise, and by gaining exposure to ETFs designed to target the domestic consumer, investors can defend against current global fears and prepare for strength when the skies clear down the road.


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