Followers of exchange-traded funds (ETFs) know that ETFs have exploded in popularity in recent years. They know that ETFs carry some compelling advantages for investors over stocks and funds. And they know that companies that issue ETFs, in their efforts to grab every dollar they can, have come out with ever more such offerings, many of which are so narrowly focused, they're almost ridiculous.
Make room for the brand new FocusShares ISE-REVERE Wal-Mart Supplier Index Fund
The components of the fund span the retail industry. There are shares of game-maker Activision
I have a few problems with this investment, though:
- Sure, the index may have beaten Wal-Mart's stock. But remember that Wal-Mart stock has pretty much been stagnant for several years now. (Trust me -- I'm a shareholder.) Its long-term past offered great appreciation for shareholders, and its future may be the same, but over the past five years, it has just barely broken even after dividends. So it's no great feat to have beaten that.
- Next, these companies share a significant dependence on a single major customer: Wal-Mart. In my book, it's a worrisome thing if a company relies too much on one customer. If Wal-Mart stumbles, so do these firms.
- Finally, remember that Wal-Mart is not known for being an easy buyer to deal with. It's very demanding of its suppliers. It wants low, low prices that it can pass on to its customers, and the considerable pressure it puts on suppliers similarly squeezes their bottom lines.
Invest in this fund if you want, but be careful. Rolling back prices may put a smile on Wal-Mart's face, but its suppliers can't always say the same.
Longtime Fool contributor Selena Maranjian owns shares of Wal-Mart, which is a Motley Fool Inside Value recommendation. Activision is a Stock Advisor pick, and Mattel is also an Inside Value recommendation. Need new ideas for your money for the new year? Take a risk-free look at Stocks 2008. The Motley Fool is Fools writing for Fools.