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.
[related_stories]Capital IQ also argues that investors should stay invested in equities as currency pressures moderate ahead – the depreciating U.S. dollar will help bolster U.S. companies’ revenues from overseas markets. According to Capital IQ, third and fourth quarter 2016 growth is expected to be 6.3% and 9.7%, respectively.
S&P Global Market Intelligence equity analyst Joseph Agnese also projects revenue growth will be sustained by improved pricing power as companies expand market and R&D budgets. Additionally, cheaper commodity costs and increasing efficiency will help support operating margin expansion.
The consumer sector is currently one of the better performing areas of the market. XLP increased 4.1% year-to-date while the S&P 500 rose 1.7%. The ETF is also trading above its 50-day and 200-day simple moving averages.
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Consumer Staples Select SPDR