While the markets are rebounding, a heavily shorted consumer staples sector exchange traded fund may continue to fall behind.
The Consumer Staples Select Sector SPDR (NYSEArca: XLP) was up 1.0% Wednesday. The defensive staples sector was among the worst performing areas of the market this year, falling 2.8% over the past month and dipping 0.8% year-to-date. XLP also closed below its 200-day simple moving average Monday, the first time since February 2014, but has since bounced back.
Investors have exited out of the sector in droves, pulling $2.8 billion from XLP this year, the most among sector funds, reports Michael Regan for Bloomberg.
Meanwhile, the number of shares of XLP that were borrowed by short-sellers has increased to 9.3%, one of the highest levels in four years and overtaking the Industrial Select Sector SPDR (NYSEArca: XLI) as the most shorted main industry group SPDR sector fund. XLI has declined 2.0% over the past month and fell 1.6% year-to-date.
According to Markit and Bloomberg data, the most heavily shorted consumer staple stocks include McCormick & Co (NYSE: MKC), Campbell Soup (NYSE: CPB), Tyson Foods (NYSE: TSN), Clorox (NYSE: CLX), JM Smucker (NYSE: SJM), Reynolds American (NYSE: RAI), Keurig Green Mountain (NYSE: GMCR), General Mills (NYSE: GIS) and Whole Foods Market (NYSE: WFM). All together, the positions make up 8.8% of XLP’s underlying portfolio.
McCormic & Co showed the highest short interest, with 6.3% of shares borrowed by short sellers. This suggests that bearish traders have a more pessimistic outlook on the overall sector, with a heavy bet against XLP, than any individual company.
Andrew Burkly, head of institutional portfolio strategy at Oppenheimer & Co., pointed out that relative valuations “have crept up to levels approaching prior cyclical peaks” for consumer staples, discretionary and healthcare, but “it’s more so a warning sign for secularly more slower growing consumer staples” than other areas with higher growth prospects.
Carter Worth at Cornerstone Macro also argued that consumer staples are “a bad area of the market that’s getting worse” and suggested investors to “keep selling.”
Consumer Staples Select Sector SPDR
For more information on the consumer sector, visit our consumer staples category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of XLP.