A Defensive Sector ETF for Volatile Summer Months

While many opt to “sell in May and go away,” investors who stick around may be better off rotating into more conservative picks, such as consumer staples and sector-related exchange traded funds.

For instance, the Consumer Staples Select SPDR (NYSEArca: XLP) tries to reflect the performance of the Consumer Staples Select Sector Index, which is comprised of consumer staples stocks taken from the S&P 500 Index. The fund includes a broad range of consumer stocks, including 23.4% food & staples retailing, 21.2% beverages, 19.2% household products, 18.2% food products, 16.6% tobacco and 1.3% personal products.

The sustainable nature of the consumer staples sector could help investors weather a potential storm in the summer months. Since April 30, 1945, the S&P 500 rose in price an average 1.4% from May through October, compared to an average 6.8% from November through April, writes Todd Rosenbluth, S&P Global Market Intelligence Director of ETF Research, in a research note.

However, Sam Stovall, a S&P Global Market Intelligence equity strategist, pointed out that investors would be better off rotating to more defensive sectors of the S&P 500 index, like consumer staples, noting that the sector rose an average 4.6% in the May through October period since 1990 and outperformed the S&P 500 70% of the time, the most of any of the 10 GICS sectors.

“We think as investors look to the more defensive sector, XLP is a top ranked ETF worthy of additional scrutiny,” Rosenbluth said.

Specifically, XLP shows a beta of 0.74 relative to the S&P 500 index –  a 1 reading indicates a security with move with the market, but a lower beta implies the security is less volatile than the market.