Now that the election is over, the focus of American investors
is on the fiscal cliff. While it appears as though some
compromise may be possible among the two major parties, investors
are selling off just in case.
That is because there are some concrete worries over the
capital gains tax rate heading into 2013 now that Obama has been
assured a second term. Rates are expected to increase pretty much
no matter what due to the Affordable Care Act, but due to the
fiscal cliff, these taxes could increase back up to ordinary
income levels, a near tripling of the current amount (see
Could The Small Cap Healthcare ETF Be A Great
Pick?
).
Obviously this situation has spooked many investors and with
the incredible gains that we have seen in the past year or so,
there is great desire to lock in gains before the possibility of
these higher rates kicks in. Given this, investors should
probably expect a great deal of volatility as we close out the
year as more is known about the impending fiscal cliff and if we
will go over it to start 2013.
With this backdrop, a look to lower volatility securities
could be ideal at this time. While there are a number of sectors
that can accomplish this, a favorite of ours is the consumer
staple segment (read
the Guide to Consumer Staples ETFs
).
Not only is this a lower volatility sector in normal market
conditions, but unlike some of the other low volatility
spaces-like utilities the dividends aren't as high so worries
about this part of the cliff shouldn't hit staples as badly.
Furthermore, the American consumer is seemingly back on track, so
an ETF in this segment could be a great way to play the
trend.
For these investors, we have highlighted below three of the
lowest volatility consumer staples ETF,
according
to XTF.com data
over the past year. Any of this trio could offer up investors
potentially lower amounts of uncertainty, while still offering up
quality exposure to an in-demand and increasingly rebounding
sector:
Select Sector SPDR-Consumer Staples ETF (
XLP
)
This is easily the most popular consumer staples ETF out
there, tracking the Consumer Staples Select Sector index. This
benchmark includes a variety of staples segments like cosmetics,
tobacco, personal care products, and of course food and
drinks.
The fund has over $5.75 billion in total AUM, and the average
daily volume is well over 5.5 million shares a day, so bid ask
spreads will be exceptionally tight. Fees aren't too bad either
as the expense ratio is 0.18% a year while yields come in above
2.7% too (see
Three Excellent Dividend ETFs for Safety and
Income
).
In total, the fund holds 43 stocks in its basket with big
weights to large cap giants like
PG
,
PM
, and
KO
. From an industry look, household products, tobacco, beverages,
and packaged food products all account for at least 16% of
assets, suggesting a relatively well spread out profile for the
fund.
Vanguard Consumer Staples Index Fund (
VDC
)
Another popular consumer staples ETF comes to us from
Vanguard, tracking the MSCI US Investable Market Consumer Staples
Index. This focuses in on direct-to-consumer product companies
that are deemed to be nondiscretionary and thus relatively immune
from the business cycle.
This product also has over $1 billion in total AUM, although
volume is a tad lighter for this ETF with just over 60,000 shares
moving hands on a regular basis. Expenses are also comparable to
XLP, although this fund loses out by one basis point and has a
slightly weaker annual yield (read
Three Low Beta ETFs for the Uncertain Market
).
VDC also holds a great deal more securities, over 110,
although it does give big weights to a lot of the same firms
listed above. Its industry dispersion is also quite similar,
although in this case beverages are second, packaged food is
third, and tobacco is fourth, while household products maintains
its top spot.
Guggenheim S&P Equal Weight Consumer Staples ETF (
RHS
)
For a different approach to the consumer staples segment,
investors have RHS to consider. This product tracks the S&P
Equal Weight Consumer Staples Index, which means that the fund
gives every stock in the benchmark the same weight, irrespective
of market capitalization levels (read
Is It Time For an Equal Weight ETF?
).
This technique hasn't caught on too much in the staples
market, as the ETF has just $40 million in assets and sees about
13,000 shares in volume a day. Furthermore the expense ratio is a
little high at 50 basis points a year while there is little in
annual yield-2%-- to make up for this added cost. Fortunately,
the approach has outperformed others in the trailing three month
period, although it has underperformed in longer time frames.
Still, the fund offers a radically different approach to the
space, as no one firm accounts for more than 3% of assets, and
the big three of KO, PM, and PG aren't in the top ten. This
produces a product that has roughly 33% in packaged food, and
then double digits in beverages and household products to round
out the top three.
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COCA COLA CO (KO): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis
Report
PHILIP MORRIS (PM): Free Stock Analysis
Report
GUGG-SP5 EW C S (RHS): ETF Research Reports
VIPERS-CONS STA (VDC): ETF Research Reports
SPDR-CONS STPL (XLP): ETF Research Reports
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