Considering that it is home to some of the sleepiest stocks on
the market and that it is merely the fifth-largest
sector weight in the S&P 500
, the consumer staples group has sure been on the receiving end
of a lot of attention.
Perhaps part of the reason is that some folks are having a
hard time digesting the notion of staples playing a leadership
role as U.S. stocks ascend to record highs. Fair enough. After
all, it is reasonable to assume that the rally would have fewer
doubting Thomases if sectors such as materials and technology
were doing the leading.
More recently, questions over staples' viability as a
leadership sector have turned into musings about a potential
bubble. Again, it is a legitimate issue to mull with the Consumer
Staples Select Sector SPDR (NYSE:
) and the Vanguard Consumer Staples (NYSE:
) both up more than 20 percent year-to-date.
However, just because folks are pontificating about a staples
bubble does not mean one materialize in the near-term. In fact,
there are several reasons why the consumer staples rally can keep
The Rally Has Already Proven Durable Meaning, the staples
rally has already proven durable. In fact, rallying staples
stocks is nothing new. Going back to March 2010,
XLP has been the second-best performing sector
. Only the Consumer Discretionary Select SPDR (NYSE:
) has been better than XLP.
Since March 29, 2010, XLP has nearly tripled the returns of
the Financial Select Sector SPDR (NYSE:
) and more than doubled the returns of the Materials Select SPDR
). One can make of that what one will, but the reality is staples
as a leadership group is a concept that is at least three years
Seen It Before In the 2004-2007 bull market, the SPDR S&P
) gained 41.4 percent, returns that trailed XLP by 310 basis
points. From January 2, 2004 through December 31, 2007, four
sector SPDRs performed better than XLP: The Energy Select Sector
), the Industrial Select Sector SPDR (NYSE:
), the Utilities Select SPDR (NYSE:
) and the aforementioned XLB.
Over that time, XLP offered nearly double the returns of the
Healthcare Select Sector SPDR (NYSE:
) and better than triple the returns of XLF. XLP also outpaced
XLY. Regarding XLP's 2004-2007 performance, it is "middle of the
pack" among the sector
mentioned here. However, it was good enough to outpace some
higher beta sector ETFs such as XLF.
Throw in the impressive 2004-2007 run for XLU and the current
environment is not the first time in recent memory investors have
seen low beta sectors outperform SPY on the way up.
Investors Love Low Beta Speaking of low beta, investors love
the concept of reduced beta/minimum volatility. Year-to-date
inflows to so called "low vol" ETFs prove that point. In the
first quarter, minimum volatility exchange traded products raked
in $4.1 billion in new assets, or an average of $1.4 billion per
month. That is more than triple the average monthly inflow seen
to these ETFs last year,
according to iShares data
ETFs such as the PowerShares S&P 500 Low Volatility
) and the iShares MSCI USA Minimum Volatility Index Fund (NYSE:
) are, not surprisingly, heavy on staples, health care and
utilities names. Whether it is through individual stocks or via
low vol ETFs, investors are expressing plenty of affection
towards low volatility sectors.
Combined, SPLV and USMV have about $7 billion in assets. That
is hardly enough to bandy about favorite Wall Street buzz phrases
such as "crowded traded" or "bubble."
Commodities Costs Here's an anecdotal example that is worth
noting: A box of Honey Nut Chex made by General Mills (NYSE:
) contains whole grain corn, cornmeal and sugar. Year-to-date,
the Teucrium Corn Fund (NYSE:
) is down more than nine percent. The iPath DJ-UBS Sugar TR
Sub-Index ETN (NYSE:
) is off more than 10 percent.
Other constituents in XLP and VDC make products with corn,
coffee, chocolate, sugar and wheat. Good news: The average
year-to-date performance for the Teucrium Wheat Fund (NYSE:
), the iPath DJ-UBS Cocoa TR Sub-Idx ETN (NYSE:
) and the iPath DJ-UBS Coffee TR Sub-Index ETN (NYSE:
) is a loss of about nine percent. Should these prices continue
to slide, staples producers could get the benefit of lower input
costs later this year.
For more on ETFs, click
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