The economic backdrop for the consumer staples sector remained
more or less weak in 2013 due to a difficult consumer spending
environment. Middle-class consumers struggled to cope with rising
gas prices, delayed income tax refunds and higher payroll taxes.
In addition, difficult operating conditions in Europe and a
slowdown in some major emerging countries threatened growth.
3 Energy ETFs to buy on Ukraine crisis
Consumer staple companies have been witnessing sluggish growth in
the developed markets, due to market saturation, which along with
lower disposable incomes and increased competitive activities
have added to their woes. As a result, many of them have been
looking at faster growing emerging markets.
Relative to the mature North American and European markets,
emerging markets such as Brazil, India, China, Mexico, Russia and
Southeast Asia are still untapped. That's a good strategy in the
long run, but the near-term outlook for many of these markets
remains uncertain. The ongoing currency turmoil is particularly
problematic, as a stronger dollar reduces the value of
outside-U.S. sales and in turn limits growth.
This uncertain macro environment in U.S. as well as in the
international markets is a big reason why many companies in the
sector have lowered their guidance for 2014. With top-line growth
hard to come by, many companies have been focusing on cost
controls, acquisitions and share buybacks to boost the
3 ETFs to buy on encouraging retail stock
In a crowded and competitive space, consumer product companies
need to regularly innovate and upgrade their brands to create
differentiated value propositions for their customers and to
In order to boost profits and top-line growth, most consumer
staples companies are divesting low-margin brands, improving the
supply chain and implementing cost-reduction initiatives. These
help to reduce the effects of inflating commodity costs and other
input costs, which have remained a drag on margins of most
companies in this sector. (Read:
Bank on dividends with these financial ETF
Many consumer staple companies are also carrying out
acquisitions, both domestically and internationally, to expand
their existing customer base and product lines into new markets.
Some of them are also forming partnerships to take a lead in this
Playing the Sector through ETFs
Given the defensive nature of this sector, it will outperform
when equity markets are more bearish and underperform when
bullish. The ups and downs of the sector due to the U.S. and
global exposure can be played with a wide array of ETFs. (See all
Consumer Staples ETFs
Consumer Staples Select Sector SPDR ETF
Launched on Dec 16, 1998, XLP is an ETF that seeks investment
results corresponding to the S&P Consumer Staples Select
Sector Index. This fund consists of 42 stocks of companies that
manufacture and sell a range of branded consumer packaged goods,
with the top holdings being
Procter & Gamble Co.
The Coca-Cola Co.
Philip Morris International Inc
The fund's expense ratio is 0.16% and it pays out a dividend
yield of 2.47%. XLP has about $5.5 billion in assets under
management as of Feb 26, 2014.
Vanguard Consumer Staples ETF
Initiated on Jan 26, 2004, VDC tracks the performance of the MSCI
US Investable Market Consumer Staples 25/50 Index. It measures
the investment return of large-, mid-, and small-cap U.S. stocks
in the consumer staples sector. The fund has a total of 110
stocks, with the top three holdings being Procter & Gamble,
Wal-Mart Stores Inc.
It charges 0.14% in expense ratio, while the yield is 2.28%. VDC
has managed to attract $1.8 billion in assets under management
till Jan 31, 2014.
First Trust Consumer Staples AlphaDEX
FXG, launched on May 8, 2007, follows the equity index called
StrataQuant Consumer Staples Index. FXG is made up of 38 consumer
staples securities, with top holdings being
WhiteWave Foods Company
Tyson Foods Inc.
Constellation Brands, Inc.
(STZ). The fund's expense ratio is 0.70% and the dividend yield
is 0.94%.Iit has $769.4 million in assets under management as of
Feb 26, 2014.
Guggenheim S&P 500 Equal Weight Consumer
Launched on Nov 1, 2006, RHS is an ETF that seeks investment
results corresponding to the S&P 500 Equal Weight Index
Consumer Staples. This is an equal-weighted fund and constitutes
40 stocks, with the top holdings being
(WAG) and Tyson Foods Inc.
The fund's expense ratio is 0.50% and pays out a dividend yield
of 1.54%. RHS has about $108.9 million in assets under management
as of Jan 31, 2014.
PowerShares Dynamic Consumer Staples
PSL, launched on Oct 12, 2006, follows the Dynamic Consumer
Staples Sector Intellidex Index. It comprises 42 stocks that are
principally engaged in providing consumer goods and services that
have non-cyclical characteristics, including tobacco, textiles,
food and beverage, and non-discretionary retail. Top holdings
United Rentals Inc.
Church & Dwight Co Inc.
Whole Foods Market Inc.
The fund's expense ratio is 0.65% and the dividend yield is
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FT-CONSUMR STP (FXG): ETF Research Reports
PWRSH-DW CON ST (PSL): ETF Research Reports
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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