It probably is not what momentum chasers and risk-embracing investors want to hear, but consumer staples stocks and the relevant exchange traded funds are surviving in the currently volatile market environment.
Although neither ETF is currently trading higher on the day (non-leveraged ETFs are), the Consumer Staples Select Sector SPDR (NYSEArca: XLP) and the Vanguard Consumer Staples ETF (NYSEArca: VDC) are two of just three ETFs to have made new all-time highs to this point in Thursday’s trading session. The staples sector is widely viewed as a defensive play due to its relative low volatility. [Shelter With Staples ETFs]
XLP, VDC and friends are showing signs of expected durability at a time when some analysts view the staples sector as richly valued. In a recent research note, AltaVista Research tagged XLP with an underweight rating, making the ETF the only one of the nine sector SPDRs the research firm labeled with that ominous rating. Typically, ETFs rated underweight by AltaVista “consist of stocks trading at relatively expensive valuations and/or having below-average fundamentals,” according to the research firm. [A Tepid View of Staples ETFs]
XLP is dealing with the valuation problem, having risen almost 1% over the past five days while the S&P 500 is off almost 2.5% over the same period. Still, there is a downside to staples stocks and ETFs taking on leadership roles and it could portend further weakness in equities.
A ratio measuring XLP against the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) is closing in on a 52-week high, cementing the notion that defensive names are more in style at the moment.
Measuring XLP and XLY, the largest consumer discretionary ETF, against each other is a useful endeavor with some technical analysts believing the ratio of the two ETFS is an important market indicator. While staples stocks and ETFs like XLP are prized conservative income investors and are useful in the early innings of recovery from a bear market, more cyclical fare such as discretionary names arguably should be in favor at this stage of an economic recovery.
The reverse has been true this year, a year after XLY was one of the best of the nine sector SPDR ETFs. In 2014, XLP is up 8% while XLY is higher by just 0.2%.
And money is flowing into staples ETFs. Since the start of this month, XLP has added $289.4 million in new assets while VDC has seen inflows of nearly $71 million. The Fidelity MSCI Consumer Staples Index ETF (NYSEArca: FSTA) has added almost $7 million this month, bringing its assets under management total to $127.3 million. That is up from $31.4 million at the end of May. [Fidelity ETFs Race to $1B in AUM]
Consumer Staples Select Sector
