Defensive Consumer Staples ETFs Lead Market Rally
May 30th, 2014 at 8:00am by Tom Lydon
The equities markets advanced to new all-time highs, but defensive consumer staples sector exchange traded funds led the charge Thursday as the Commerce Department revealed a decline in gross domestic product.
Consumer staples ETFs also hit all-time highs Thursday. The First Trust Consumer Staples AlphaDEX Fund (NYSEArca: FXG) increased 1.7%, Vanguard Consumer Staples ETF (NYSEArca: VDC) rose 0.9% and Consumer Staples Select Sector SPDR (NYSEArca: XLP) was up 0.9%. Year-to-date, FXG is up 8.3%, VDC is 3.7% higher and XLP gained 3.7%. [Sinful Staples ETF at All-Time Highs]
Broad U.S. markets advanced Thursday, with the S&P 500 closing at a new high, despite the updated estimate on first-quarter U.S. GDP that showed a seasonally adjusted 1% contraction, reports Chris Dieterich for the Wall Street Journal.
Investors largely brushed the negative GDP numbers, attributing the weakness to the crippling winter conditions and arguing that the markets have already priced in a poor number. Traders are now anticipate a strong second quarter showing.
“All in all, the data is adding up to a stronger second quarter,” Anastasia Amoroso, global market strategist at JPMorgan Funds, said in the article.
The Consumer Staples Select Sector SPDR ETF is a market-cap-weighted fund that holds consumer staple picks from the S&P 500, which include food, beverage, personal-goods and tobacco names. XLP has a 0.16% expense ratio.
The Vanguard Consumer Staples ETF selects consumer staple stocks from the broader MSCI US Investable Market 2500 Index, including company stocks from food, beverage, tobacco, nondurable goods, drug retailer and consumer supercenters, but the ETF excludes automotive and leisure firms. VDC has a 0.14% expense ratio.
The First Trust Consumer Staples AlphaDEX fund follows a so-called smart-beta index that selects components from the Russell 1000 based on growth factors like price appreciation, sales/price and one-year sales growth, along with value factors like book-value-to-price, cash-flow-to-price and return on assets. Additionally, holdings are equally weighted, so the ETF has a larger tilt toward mid-cap companies, which make up 62.9% of the fund. FXG has a 0.70% expense ratio. [Super Staples ETFs]
“In general, people buy consumer staples products regardless of the economic climate,” according to Morningstar analyst Robert Goldsborough. “As a result… holdings generally have stable revenue growth and cash flows.”
Consumer Staples Select Sector SPDR
For more information on market sectors, visit our sector ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.