Consumer Staples ETFs Play Defense Against Euro

June 8th at 10:29am by John Spence

Defensive sector ETFs such as consumer staples funds have outperformed the S&P 500 since April in a market dominated by European debt fears and the possibility of a Greek exit from the euro. Consumer staples ETFs also offer decent yields as investors ride out a volatile and risky market.

Consumer Staples Select Sector SPDR (NYSEArca: XLP) gained 2.6% for the three months ended June 7, compared with a 2.2% loss for iShares S&P 500 (NYSEArca: IVV).

The noncyclical sector is often favored in tough times for the economy because the companies’ products are necessities.

“One of the best sectors for maintaining exposure to the equity market with below average risk is the consumer staples,” writes Matt McCall at Investopedia. [Sector ETFs for Defense: Utilities and Consumer Staples]

“Consumer Staples Select Sector SPDR (XLP) is the lowest-priced and most liquid exchange-traded fund for broad exposure to a basket of defensive, mega-cap consumer discretionary names,” writes Morningstar analyst Robert Goldsborough in an article posted Friday. “As investors become increasingly concerned about potentially chilly economic winds ahead that could affect more discretionary consumer spending, they might want to consider this ETF, which holds the 41 consumer staples firms that are contained in the S&P 500 Index.”

XLP has a dividend yield of 2.66%, according to manager State Street Global Advisors. [Consumer Staples: Defense and Yield]

“XLP is a defensive holding because consumers buy toilet paper, razors, bandages, and baby food regardless of the economic climate,” Goldsborough said. Utilities are another relatively stable, higher-yield sector that investors run to in difficult times.

The consumer staples ETF has an expense ratio of 0.18%.

“Investors seeking explosive growth are better suited looking elsewhere, as this ETF is chock-full of mature businesses offering relatively stable returns and a clear tilt toward large-cap names,” he added. “While investors shouldn’t expect much higher than mid-single-digit top-line growth from these mature firms, XLP does offer a decent dividend yield.”

Other consumer staples ETFs include:

  • Focus Morningstar Consumer Defensive Index ETF (NYSEArca: FCD)
  • iShares Dow Jones US Consumer Goods Sector Index Fund (NYSEArca: IYK)
  • iShares S&P Global Consumer Staples (NYSEArca: KXI)
  • Vanguard Consumer Staples Index Fund (NYSEArca: VDC)

Consumer Staples Select Sector SPDR


The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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