Consumer staples companies sell relatively low-priced products
that consumers use in their daily lives, including food,
beverages and products for personal hygiene or household
cleaning. The enduring demand for these products irrespective of
the economic cycle makes the sector defensive.
Consumer staples stocks have attracted a lot of investor
attention in the current environment of ultra-low interest rates
as most of these companies pay out high dividends. Despite recent
pull-back, this sector has outperformed the S&P 500 in the
year-to-date period, generating gains of 13.3% compared with
gains of 11.9% for S&P 500, as of July 1, 2013. (Read:
3 Sector ETFs to profit from rising rates
Though consumer staple companies, due to their defensive
nature, are much less exposed to changes in income, they are
still impacted when consumer confidence drops or income declines.
In such a scenario, consumers buy staples but prefer cheaper
brands, which hurts the profitability of the sector.
Consumer product companies therefore regularly need to
innovate and upgrade their brands to boost consumer confidence
and create differentiated value propositions for their customers
in order to remain successful. Other than enhancing their
products, the companies are also focusing on shifting consumer
preferences, increasing health consciousness and rising obesity
concerns. The companies are now inclined toward making healthier
and nutritious products.
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 the companies 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, despite top-line
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Besides costs saving initiatives, many consumer staples
companies are shifting their focus to emerging markets to boost
sales. With market saturation, low disposable income of
consumers, uncertain macroeconomic conditions and increased
competitive activity in developed markets, these companies are
diverting their resources to explore emerging markets.
However, increasing presence in the emerging markets also
brings along the negative impact from currencies for many
consumer staples companies. A stronger dollar reduces the value
of outside-U.S. sales and in turn limits growth in the emerging
markets. But with improving standard of living in developing
countries, the companies are now focusing on increasing pricing
to derive profits, which was difficult earlier. (Read:
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Unfortunately, there are many companies which are still
impacted by the macro-economic environment in the U.S. Higher
gasoline prices, payroll tax increases and a tough labor market
are burdening U.S. consumers in addition to slow job growth, high
interest rates and tightened credit availability. The
persistently sluggish European economic conditions and worries
about China's growth outlook also create an overhang.
Playing the Sector Through
ETFs present a low-cost and convenient way to get a
diversified exposure to this sector. Below we have highlighted a
few ETFs tracking the industry:
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 0.18% and it pays out a dividend
yield of 2.78%. XLU has about $6.6 billion in assets under
management as of Jun 26, 2013.
Vanguard Consumer Staples ETF
Initiated on Jan 26, 2004, VDC is an ETF that 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 113 stocks, with the top three
holdings being Procter & Gamble, Coca-Cola and Philip Morris.
It charges 0.14% in expense ratio, while the yield is 2.56% as of
now. VDC has managed to attract $1.6 billion in assets under
management till May 31, 2013.
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 37 consumer
staples securities, with top holdings being
Green Mountain Coffee Roasters, Inc.
The Kroger Co.
Tyson Foods Inc
The fund's expense ratio is 0.70% and the dividend yield is
1.98%, while it has $591.6 million in assets under management as
of Jun 26, 2013.
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, with the top
Whole Foods Market, Inc.
Constellation Brands Inc.
Avon Products, Inc.
The fund's expense ratio is 0.50% and it pays out a dividend
yield of 2.1%. XOP has about $69.6 million in assets under
management as of Jun 27, 2013.
PowerShares Dynamic Consumer Staples
PSL, launched on Oct 12, 2006, follows the Dynamic Consumer
Staples Sector Intellidex Index. It comprises 60 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 include
General Mills Inc
Costco Wholesale Corp
(COST). The fund's expense ratio is 0.65% and the dividend yield
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FT-CONSUMR STP (FXG): ETF Research Reports
PWRSH-DYN C STP (PSL): ETF Research Reports
VIPERS-CONS STA (VDC): ETF Research Reports
SPDR-CONS STPL (XLP): ETF Research Reports
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