When it comes to sector exchange traded funds with a reputation for volatility, the Consumer Staples Select SPDR (NYSEArca: XLP) probably is not the first ETF that comes to mind.
But in what is clearly a testament to rising jitters among market participants, XLP is in fact experiencing an uptick in volatility.
“The pricing of the ‘VIX of’ consumer staples stocks is up 43% over the last month. That’s the largest increase for the month. … The options market is pricing higher levels of implied volatility even as actual price volatility is declining. The math here: 30 day actual volatility is 8.9%, but implied volatility is 14.0%. That percentage – 157% – is the greatest of any of the 10 S&P major industry groups. Very strange for a group that typically offers very strange for a group that typically offers little drama,” said Convergx Chief Market Strategist Nicholas Colas in a note posted by Chris Dieterich of Barron’s.
The $7.9 billion XLP, the largest consumer staples ETF by assets, has three-year volatility of 10.6%, below the 11.4% found on the S&P 500, according to ETF Replay data.
XLP has been unable to weather the recent rout in U.S. stocks as the ETF is off 1.7% over the past week, betraying its reputation as one of the best performers among the nine sector SPDRs during the months of August and September. [August Sector Ideas]
“Margins appear to be getting squeezed this year, and the strong USD isn’t helping things by acting as a headwind to revenue growth from abroad, resulting in a forecast decline in EPS this year. Estimates for next year look better. In any case Consumer Staples stocks have seen their P/E multiples expand considerably over the last five years. As a result these stocks appear rather expensive, and Staples has an UNDERWEIGHT recommendation,” according to AltaVista.
Consumer Staples Select Sector SPDR
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.