With the entire U.S. equity market in the doldrums, it has been
a rough time to be a stock investor. However, a few of the
defensive sectors have been able to hold up better than most,
including the traditional safe havens such as consumer staples,
health care, and utilities.
In particular, consumer staples firms have been a solid
performer as of late and could continue to have a leadership role
in the coming months. That is because consumer staples firms remain
more or less impervious to economic cycles and play a defensive
role when the macro economy is under pressure. The resilience of
the sector was displayed during the recent slump in the US
aggravated by the debt crisis in Europe (
Top Three Consumer Staples ETFs
The sector appears to be defensive as it includes manufacturers
and distributors of food, beverages and tobacco and producers of
non-durable household goods and personal products. Also included
are food & drug retailing companies as well as hypermarkets and
consumer supercenters which are considered essential for daily
needs. Consumer staples ETFs therefore flourished during the
downturn because of steady demand for consumer essentials and the
low levels of correlation it has with economic cycles.
Ironically, with the equity market recovering the sector has
proved somewhat to be a laggard. Though the top line would grow as
usual, margins would take a hit from escalating food prices,
although this has reversed with sagging commodity prices as of
The saving grace here is the markets in the emerging economies
where demand is on the rise. Operating margins are also higher in
these regions because of favorable foreign exchange translation and
lower production costs.
Beverage companies such as
) have been seen to expand their business in the emerging markets
of India, Russia and China, as the developed markets are
However, headwinds have appeared in the form of rising raw
materials prices in some key segments. Firms have sought to
mitigate this by reducing packaging sizes, much to the chagrin of
consumers, although this does help to boost margins overall.
Cost reduction initiatives have also been on the radar.
Coca-Cola has undertaken different productivity initiatives to
streamline its cost structure and enhance profitability. In 2011,
the company successfully completed its four-year productivity
program, with annualized savings over $500 million, and has made
plans to launch a new global productivity initiative in 2012 that
will target $350 million to $400 million in annualized savings by
the end of 2015.
Despite the cost constraints and the challenging economic
environment, the sector continues to introduce new products and
improvise on current products in order to meet the changing demands
Nevertheless, despite the challenges, the sector has positioned
itself well to take advantage of shifting markets both from a cost
and a target perspective. Additionally, should markets remain weak,
the segment looks likely to be a better choice than the more
volatile sectors, suggesting that some investors may want to
consider the space for lower risk investing.
Thanks to these developments, some investors have shown ample
interest in the staples sector. For investors seeking to play this
trend in ETF form, there are a variety of consumer staples ETFs
offering excellent exposure. Below, we discuss briefly 15 ETFs
which fall in this sector, any of which could help investors gain
targeted exposure to the space:
Consumer Staples Select Sector SPDR Fund (
The Consumer Staples Select Sector SPDR Fund is the oldest
product in the space with a high liquidity level which provides
exposure to the consumer sector at the lowest cost. The ETF seeks
to provide investment results that correspond generally to the
price and yield performance, before fees and expenses, of the
S&P Consumer Staples Select Sector Index.
The product appears to be very liquid as approximately 8.6
million shares change hands on a daily basis. The fund invests its
$5,548.9 million assets in a small basket of 43 stocks. However,
the fund invests 69.4% of its asset in the top ten holdings which
suggest that the fund is highly concentrated in the large cap
Among the sectors that the fund is more tilted towards include;
Beverages and Food, and Staples Retailing, as these two hold the
lion's share making up (combined) 42.2% of the total investment.
For this exposure, the investor pays an expense ratio of 18 basis
points, one of the lowest in the space. Due to a lower correlation
with the broader market, the fund delivered a return of 5.4% over a
period of one year. (
Three Low Beta Sector ETFs
Vanguard Consumer Staples ETF (
Investors seeking to play with the broader basket of stocks at
the lowest cost possible should invest in Vanguard Consumer Staples
ETF. The fund provides exposure in stocks of companies that provide
direct-to-consumer products based on consumer spending habits and
are considered non-discretionary.
The ETF tracks the MSCI US Investable Market Consumer Staples
25/50 Index and tracks a broader basket of 108 consumer staples
stocks unlike XLP. The fund has a total asset base of $1,031
million of which 64.1% is invested in the top 10 holdings. So like
XLP, this fund also appears to be concentrated with assets tilted
towards the large caps.
Among the different industries, household products and soft
drinks take the top spots with 37.3% of investment made in these
two categories. VDC charges a reasonable premium of 19 basis points
for the investment.
A broader exposure to consumer staples companies did not help
the fund to beat the one-year return of XLP, although it just
missed the State Street product's return.
S&P Global Consumer Staples Sector Index Fund
The S&P Global Consumer Staples Sector Index Fund (ETF)
seeks investment results that generally correspond to the
performance of the S&P Global 1200 Consumer Staples Sector
Index. KXI provides access to 99 stocks of the consumer staples
industry through an asset base of $457.6 million.
Currently, the fund invests 46.7% of its asset base in the top
10 holdings, suggesting a moderate level of diversification,
although more so than many other products on this list. Nestle and
Procter & Gamble Co. (
) take the top two positions with nearly 14.33% of investment.
Among sectors, the fund is more tilted towards Food Beverage
& Tobacco Industry with 64.5% of investment. (
Time To Buy The Food and Beverage ETF (PBJ)?
) The fund delivered sold returns in line with other products and
charges a fee of 48 basis points a year from investors.
First Trust Consumer Staples AlphaDEX Fund (
Investors seeking to invest in ETF, which follows an active
approach for investment, should look to FXG in the consumer staples
ETF world. The fund employs the AlphaDEX methodology which seeks to
rank stocks on growth and value factors in order to determine
weightings. Investors should also note that the bottom-ranked 25%
are also excluded from the fund, potentially giving FXG a more
concentrated approach than its counterparts.
Again, the fund provides exposure to a small basket of 38 stocks
with 44.5% of the total asset base of $436.7 million invested in
the top 10 holdings. The top 10 individual holding pattern suggests
that the fund is not inclined towards large blue chip and believes
in investing more in small cap securities, although this can change
based on the AlphaDEX outputs.
Monster Beverage Corporation (
) and Tyson Foods Inc. (
) occupy the top two positions with 10.1% of investment. Among
sectors, the fund is more partial towards the Food Products sector
with 44.85% of the portfolio.
The fund also appears to be expensive charging a premium of 74
basis points, higher than the other ETFs in the space.
Additionally, the fund's performance has come in below its
counterparts in the space, at least over the past one year
Dow Jones U.S. Consumer Goods Sector Index ETF (
iShares launched Dow Jones U.S. Consumer Goods Sector Index ETF
which seeks to provide investment results that correspond generally
to the price and yield performance, before fees and expenses, of
the Dow Jones U.S. Consumer Goods Index. The fund with a total
asset base of $403.9 million provides exposure to a broader scale
of consumer staples companies with a total of 123 stocks.
However, the fund appears to be heavily invested in the top 10
holdings as it puts 57.7% of its assets in the top 10 holdings.
Like other ETFs, this fund also appears to be concentrated in large
blue chips like Procter & Gamble Co. (
) and Coca-Cola (
), which occupies the top two positions.
Among sectors, Food Products & Beverage got the top
preference with 40.7% of asset invested in it. The fund charges a
total fee of 47 basis points and has delivered solid returns in
line with many of its counterparts over the past year.
EGShares Emerging Markets Consumer ETF (
The EGShares Emerging Markets Consumer ETF seeks to achieve its
investment objective of total return by investing in the
constituent securities of the Dow Jones Emerging Markets Consumer
Titans Index. The index measures the stock performance of 30
leading emerging-market companies in the Consumer Goods and
Consumer Services Industries as defined by the Industry
Emerging market consumers do most of their business with
familiar local or regional brands, and tend to have less affinity
for developed world brands (for the most part). ECON is designed to
provide organic exposure to these consumers; almost all of the
revenues of the underlying companies are derived from emerging
market sales, providing truer exposure to this growing theme.
The fund through an asset base of $402.5 million taps 30
emerging market stocks. However, the fund appears to be highly
concentrated in the top 10 holdings with 58.8% of the assets
invested. This indicates that the fund is not spread out among
Among sectors, the fund has 15.8% invested in Beverages thereby
holding the top position in sector profile of ECON. Among the
emerging markets, Mexico and Brazil were the top two destinations
for investment. The fund appears to be the most expensive ETF on
the list with an expense ratio of 85 basis points, and has had
trouble keeping up with other products on the list in terms of
capital gains over the past year.
Power Shares Dynamic Food and Beverage ETF (
For investors seeking a concentrated play on the food and
beverage segment PBJ could be an interesting pick. The fund tracks
the Dynamic Food & Beverage Intellidex Index which uses
different investment criteria like price momentum, earnings
momentum, quality, management action, and value to include stocks
in the list.
This has led to the inclusion of 29 stocks in the fund with AUM
of $169.2 million. 47.8% of this asset base is invested in the top
10 holdings, which suggest that the fund is moderately concentrated
in the top 10 holdings. Yum! Brands, Inc. (
) takes the top position in the ETF while among sectors, consumer
discretionary leads with 16.8% of investment.
The fund charges an expense ratio of 71 basis points, which is
somewhat higher than many other products on the list while the fund
has also underperformed thanks to its heavy consumer discretionary
Power Shares Dynamic Consumer Staples Sector ETF
One more fund in the space from PowerShares in the space is the
Dynamic Consumer Staples Sector ETF (PSL). PSL is a passively
managed exchange traded fund (ETF) designed to track the
performance of the Dynamic Consumer Staples Sector Intellidex Index
dominated by the stocks selected on the basis of various investment
59 stocks from the consumer staple sector comprise the PSL
holding list with a total asset base of $38.6 million. The fund
invests 26.7% of its asset base in the top 10 holdings, which
signifies that the fund does a pretty good job spreading out assets
among the various firms.
Among individual holdings, Coca-Cola (
) and Kimberly-Clark Corporation (
) are the companies where the fund has maximum exposure. The fund
over a period of one year has delivered a return in line with other
products on the list though expenses are high, coming in at 65
basis points a year (
Lower Wal Mart Exposure With These Consumer
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