Sumptuous Staples ETFs

It may not be the commentary on the current equity market rally that some bulls want to hear, but consumer staples exchange traded funds are more than just bystanders in said rally.

On Monday, three of the nearly 140 ETFs that made all-time highs were staples funds. That on a day when the Nasdaq Composite returned to 5,000 for the first time in 15 years.

“Joseph Agnese, consumer staples equity analyst for S&P Capital IQ, believes that significant reduction in energy costs, continued moderate food inflation, and increased sales of generic drugs are potential catalysts for the consumer staples sector and food & staples retailing industry, despite persistent pricing pressure,” said S&P Capital IQ in a new research note. “The food & staples industry experienced a strong positive revenue trend over the past five years. The weighted (market capitalization based) average five-year compound annual revenue growth rate for the industry was 5.3% between 2009 and 2014. Quarterly same-store sales growth in 2015 is likely to be relatively stable between 1.6% and 2.0%, according to S&P Capital IQ consensus estimates.”

The Consumer Staples Select Sector SPDR (NYSEArca: XLP), the largest consumer staples ETF, is up 3.2% year-to-date, good for the fifth-best performance among the nine sector SPDRs. XLP closed slightly higher Monday and just pennies below its all-time high. [Domestic Growth Lifts Consumer ETFs]

“XLP, which has more than $10 billion in assets, is diversified across the 41 consumer staples stocks in the S&P 500 Index, though the top-10 holdings comprise 64% of assets. The food & staples retailing industry is the largest for the ETF with 26% of assets, including Wal-Mart (NYSE: WMT) and Costco (NasdaqGS: COST), “ said S&P Capital IQ.

The research firm rates XLP overweight and has four-star ratings on Costco and Wal-Mart. Those stocks combine for nearly 11% of XLP’s weight.

One of three staples ETFs that hit an all-time yesterday was the First Trust Consumer Staples AlphaDEX Fund (NYSEArca: FXG), which also happens to be last year’s top-performing staples ETF. [Meet 2014’s Best Staples ETF]

FXG’s underlying index, the StrataQuant Consumer Staples Index, has a three-year standard deviation of 12% compared to 9.6% for the S&P Consumer Staples Index while the latter has a slight higher Sharpe Ratio, according to First Trust data.