Uncertain economic conditions and a shaky stock market have
left investors anxious about their returns. In this regard,
defensive sectors, and in particular consumer staples, might be a
good option for investors to play the market safely.
After all, consumer staples securities have emerged as winners
over the past couple of months given their low volatility which
has made them a popular safe haven. That is because firms for
consumer staples remain more or less impervious to economic
cycles and play a defensive role when the macro economy is under
3 Consumer Staples ETFs for the Shaky Market
The sector appears to be defensive as it includes
manufacturers and distributors of food, beverages and products
for personal hygiene or household cleaning that are considered
essential for daily needs.
While it usually isn't considered a growth segment, the demand
for these products is on the rise in developing countries such as
Brazil, India, Mexico, Russia and Southeast Asia. These emerging
markets also offer ample growth opportunities in this
Further, the shift of middle-class consumers to urban living
is driving demand for convenient and branded packaged food.
Companies in this sector continue to introduce new products and
improve existing products in order to meet the changing demands
of customers (read:
Two Sector ETFs to Buy in 2013
). Therefore, demand remains steady even during the economic
slowdown due to their non-cyclical nature.
Given this trend, a look at the top ranked
in the space, with a lower level of risk, could be a good idea
(see more ETFs in the
. One way to find a top ranked ETF in the consumer staples space
is by using the Zacks ETF Ranking system.
About the Zacks ETF Rank
A look at the top ranked consumer staples ETFs can be done by
using the Zacks ETF Rank. This technique provides a
recommendation for the ETF in the context of our outlook of the
underlying industry, sector, style box, or asset class. Our
proprietary methodology also takes into account the risk
preferences of investors as well.
The aim of our models is to select the best ETFs within each
risk category. We assign each ETF one of five ranks within each
risk bucket. Thus, the Zacks Rank reflects the expected return of
an ETF relative to other ETFs with a similar level of risk.
Using this strategy, we have found one ETF in the space that
has a Zacks Rank # 1 (Strong Buy) with a 'low risk' tolerance
level. The details are highlighted below:
Vanguard Consumer Staples ETF (
Investors seeking exposure to the U.S. consumer staple space
may find VDC an intriguing choice. Launched in January 2004, this
fund generated about 47% returns over the past three years.
The fund tracks the MSCI US Investable Market Consumer Staples
25/50 Index. This focuses in on direct-to-consumer product
companies that are deemed nondiscretionary and thus relatively
immune to the business cycle (read:
The Comprehensive Guide to Consumer Staples
The product holds a great deal of securities, over 109,
although it does just an average job in spreading assets across
individual securities. The fund puts around 62% of the assets in
top ten holdings. Procter & Gamble (
), Coca-Cola (
) and Philip Morris International (
) comprise nearly 30% of the combined share in the basket.
While the product is tilted towards large caps with about 83%
of the exposure, mid and small caps make up the remaining portion
of VDC. As a result, the fund tends to be less volatile than many
other products in the space.
Among the different industries, household products and
beverages take the top two spots in the basket with 37% of
investment. The product has so far managed assets of $1.2 billion
and half of the basket contains blend securities with a lower
Though volume is light with just over 75,000 shares moving
hands on a regular basis, this ETF has the lowest expense ratio
of 0.14% making it a cheap choice in the space.
Not only has VDC delivered impressive returns of about 11.0%
last year, it has also shown a strong run-up in its prices this
year, gaining nearly 2% so far in 2013. Further, the ETF yields a
decent dividend of 2.85% annually, suggesting it could be a solid
all-around choice for a variety of investors in this market
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COCA COLA CO (KO): Free Stock Analysis Report
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PHILIP MORRIS (PM): Free Stock Analysis
VIPERS-CONS STA (VDC): ETF Research Reports
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