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
