On top of that, valuation for staples, a sector that as a result of its defensive posture typically trades at a premium to broader indexes, is looking stretched. By AltaVista’s estimates, XLP’s 2015 P/E ratio is expected to be 19.3, trailing only the Energy Select Sector SPDR (NYSEArca: XLE) among the nine SPDRs. XLP’s estimated price/book value ratio of four is the highest among the sector SPDR ETFs, according to AltaVista data. [Listening to Staples ETFs]
Said another way, investors typically pay a premium to access the low beta and steady dividends offered by the staples sector. The strong dollar is another issue to consider.
“Continued strengthening of the dollar has caused currency headwinds for consumer staples firms with strong overseas sales, weakening these firms’ quarterly results,” according to Goldsborough.
Over the past five years XLP and the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) have a correlation of -0.47, according to State Street data, underscoring the vulnerability of staples stocks to a strong greenback.
Consumer Staples Select Sector SPDR
