Consumer staples exchange traded funds bled over $2.3 billion in March despite falling 10-year Treasury yields as investors continued betting an interest rate hike from the Federal Reserve is imminent.
That is not to say staples ETFs have been duds this year. They have not been and as much is highlighted by an average year-to-date gain of over 2% for the Consumer Staples Select Sector SPDR (NYSEArca: XLP), the largest consumer staples ETF, and the Vanguard Consumer Staples ETF (NYSEArca: VDC).
As is sometimes the case with equal-weight ETFs, the Guggenheim S&P Equal Weight Consumer Staples ETF (NYSEArca: RHS) is trumping its cap-weighted counterparts this year with a gain of nearly 4.8%.
“On a market-cap-weighted basis, the household products industry’s profit growth in 2015 is expected to be 0.7%, below its own five-year average of 1.8% as well as the estimated profit growth of 1.5% for the consumer staples sector, due to rising foreign currency exchange pressures and slowing international growth,” said S&P Capital IQ in a new research note.
RHS, which debuted in 2006 eschews single-stock and strong dollar risk with significantly reduced weights to household products dividend darlings like Procter & Gamble (NYSE: PG) and Kimberly-Clark (NYSE: KMB). Those stocks combine for just 5.1% of RHS’ weight.
The equal-weight ETF, rated marketweight by S&P Capital IQ, is more heavily allocated to food and beverage names with those industries combining for nearly 59% of the fund’s weight. Eight of RHS’ top 10 holdings are food or beverage makers. [A Buffett Deal Could Lift These ETFs]
Kraft Foods (NasdaqGS: KRFT), which is being acquired by H.J. Heinz to create the world’s fifth-largest food company, is RHS’ largest holding at a weight of 3.67%. The acquisition of Kraft, funded by Brazilian private equity firm 3G and Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A), might temporarily put a lid on large-scale staples sector mergers and acquisition activity.
However, if that is not the case, RHS is an ETF to remember because it is home to several rumored takeover targets, including Monster Beverage (NasdaqGS: MNST) and Keurig Green Mountain (NasdaqGS: GMCR). To a lesser extent Mondelez (NasdaqGS: MDLZ) and Hershey (NYSE: HSY) also have takeover potential. [An ETF for Staples M&A]
Those four stocks combine for 10.1% of RHS’s weight. The standard deviation on RHS is 9.63% and the ETF’s beta is 0.97, indicating the fund is more volatile than traditional cap-weighted staples ETFs. However, over the past three years, RHS has been only slightly more volatile than its cap-weighted rivals while outperforming those funds by wide enough margins to render the modestly higher volatility a moot point. [Get Stuck on Staples With This ETF]
The $273.5 million RHS charges 0.4% per year.
Guggenheim S&P Equal Weight Consumer Staples ETF
