It may not be a sign that all the easy money the current bull market has to offer has been made, but 2015 has been a bumpy ride for investors. Including today’s tumble, the Dow Jones Industrial Average has experienced seven triple-digit moves since Feb. 27.
Stomach-turning action like that is enough to prompt investors to consider lower beta fare. That means revisiting a popular consumer staples exchange traded fund, particularly at a time when rising 10-year Treasury yields are punishing utilities ETFs. Since February 2, 10-year yields are up 25.1%, a move that has dragged the Utilities Select Sector SPDR (NYSEArca: XLU) lower by nearly 11%.
The Consumer Staples Select Sector SPDR (NYSEArca: XLP), the largest consumer staples ETF, has been far more durable over that period, losing just 1%.
XLP “remains a strong choice for exposure to the sector. This exchange-traded fund holds a portfolio of mega-cap household names whose products consumers largely stick with regardless of the economic climate. As a result, its holdings generally have stable revenue growth and cash flows,” writes Morningstar analyst Robert Goldsborough in a new research note.
There are some concerns for XLP. For starters, the ETF has traded slightly lower this year due in large part to lethargy from some of its big-name holdings. For example, Procter & Gamble (NYSE: PG), Wal-Mart (NYSE: WMT) and Coca-Cola (NYSE: KO), XLP’s three holdings that are also Dow stocks, are among the 14 Dow stocks that are in the red to start 2015. [How Staples ETFs are Stacking Up]
Additionally, although staples stocks are not as sensitive to rising interest rates as their utilities counterparts, staples are viewed as a rate-sensitive group.
“Looking ahead, rising interest rates are a risk for the sector, along with continued strength in the dollar (which can be bad for some U.S. staples firms’ overseas businesses) and weaker global consumer spending,” adds Goldsborough.