Exchange traded funds weighted by market capitalization, such as the Consumer Staples Select SPDR (NYSEArca: XLP), remain the most popular ways for investors to access the consumer staples sector, but there are other compelling avenues to the sector worth considering.
Sectors with lower correlations, such as health care, consumer staples and utilities, would provide a more conservative or defensive play.
“Consumer Staples Stocks Have Underperformed in Prior Periods of Rising Treasury Yields. The past four periods of increases in 10-year Treasury yields of over 150 bps, consumer staples stocks underperformed, increasing on average 16.7% vs. an average gain of 33.1% in the S&P 500. This includes the most recent period of July 2012 through Dec. 2013 with consumer staples names increasing 22.1%, underperforming a 34.0% increase in the S&P 500,” according to an Oppenheimer note posted by Ben Levisohn of Barron’s.
The Guggenheim S&P Equal Weight Consumer Staples ETF (NYSEArca: RHS) is another way of gaining consumer staples exposure. 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]
The First Trust Consumer Staples AlphaDEX Fund (NYSEArca: FXG), 2014’s best-performing consumer staples ETF, uses a different type of strategic beta approach to staples stocks.
Another way of looking at FXG is that the ETF has benefited from the long-standing out-performance of mid-caps relative to broader U.S. indices. By not being heavily allocated to the most popular staples names, such as Procter & Gamble and Coca-Cola (NYSE: KO), FXG is able to offer more of a growth feel to a sector more associated with defense, not growth. [Super Staples ETFs]
“The difference is outstanding. The First Trust growth weighted fund is taking more risk with companies having smaller market capitalizations, a higher beta, (although still less than 1), and much smaller dividends. On the other hand, the Guggenheim Equally Weighted fund contains a real home run hitting line-up. The average market capitalization of the non-overlapping companies of the Guggenheim fund is a whopping $50.2310 billion compared with the First Trust fund’s non-overlapping companies $6.67 billion; that’s over 7.5 times,” according to a Seeking Alpha Post.
First Trust Consumer Staples AlphaDEX Fund
