Investors got conflicting reports Friday about the health of the U.S. consumer. Retail sales jumped a better-than-expected 1.1% in September, but a gauge of consumer sentiment posted an unexpected decline in October.
Earlier this week, Bloomberg said its consumer comfort index is hovering near a record low. [ETFs and Consumer Sentiment]
With so much uncertainty over the economy and further Federal Reserve stimulus, many investors are favoring dividend stocks and ETFs tracking defensive sectors.
As I mentioned in a recent Forbes interview, consumer ETFs are the “toilet paper and beer” trade. These are the basic consumer items that everyone needs, hence the defensive nature of the sector.
Consumer staples ETFs are less sensitive to economic cycles and may also provide diversification benefits.
The sector is made up of companies that provide household items such as food, beverages and tobacco. A top consumer staples ETF holding is Proctor & Gamble (NYSE: PG), for example. [Consumer Staples ETFs: Investing in Safe Companies]
Investors view the consumer staples as a “boring” sector, as it is not very technological, has low elasticity, and has less swings than the cyclical sectors. However, consumer staples are known for their steady and slow growth and tend to avoid the swings of cyclical consumer spending cycles. [Four Consumer Staples ETFs for Tight Wallets]
Furthermore, consumer staples companies and ETFs offer tempting dividend yields. The earnings stability and the safety of this area of the market can be a hedge when other asset classes are moving in lockstep.
Consumer staples ETFs include:
Vanguard Consumer Staples ETF
Tisha Guerrero 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.