Low beta, defensive assets have all the rage this year and at the sector level, that means investors have been flocking to groups such as the consumer staples and utilities. That trend has boosted the Consumer Staples Select SPDR (NYSEArca: XLP) by more than 4% this year, making XLP one of the best-performing sector exchange traded funds.
XLP’s bullishness this year is a reversal of fortune from late 2015. XLP and rival staples ETFs had their hands full with rising rate-related issues. For example, several of the largest staples names have reported lackluster earnings, blaming the strong dollar for weak overseas currency conversions.
However, the staples group and ETFs like XLP have been bolstered this year by a weakening dollar and a sanguine interest rate environment. The defensive consumer staples sector has been one of the year’s best performing areas of the S&P 500 as investors turned to more conservative plays in a volatile market, reports Stephanie Yang for CNBC.
“Since Staples are where money managers tend to hide during market downturns the sector’s performance can be useful in evaluating market strength and the resiliency of the current uptrend, especially in view of the impressive reversal stocks have staged from a very difficult beginning of the year,” according to See It Market.
XLP, which yields 2.5%, closed less than 1.2% below its all-time high, set earlier this month, last Thursday. However, consumer staples is one of the most expensive sectors relative to the broader market, indicating investors have been comfortable paying up to play defense this year.
[related_stories]Additionally, for an alternative index-based offering, investors can turn to the First Trust Consumer Staples AlphaDEX Fund (NYSEArca: FXG). FXG tracks a smart-beta AlphaDEX index that draws consumer staples from the Russell 1000 based on growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets.
“The weekly chart for the Consumer Staples Sector also shows a stall following all time highs although it is still within this well defined three year rising channel. It could be due for a rest in the near term but, as mentioned earlier, I would be cautious in going short here. While it’s true that Staples have been rallying hand in hand with the broader stock market indexes since the 2/11 lows, it’s also true that the sector’s defensive nature emerged quite clearly at the end of 2015 and into early 2016 as the market corrected,” adds See It Market.
Consumer Staples Select Sector SPDR
