In an year of uncertainty, the consumer staples sector has acted as a defensive play for more conservative investors, with an equal-weight consumer staples exchange traded fund standing out from the rest.
The defensive consumer staples sector has been one of the year’s best performing areas of the S&P 500, with the S&P 500 Consumer Staples Index returning 4.0% year-to-date, as investors turned to more conservative plays in a volatile market.
The sustainable nature of the consumer staples sector could also help investors weather a potential storm in the summer months ahead.
While many have turned to the Consumer Staples Select SPDR (NYSEArca: XLP) as a go-to consumer sector play for its deep liquidity, the ETF has not been the best performer. Alternatively, the Guggenheim S&P Equal Weight Consumer Staples ETF (NYSEArca: RHS) and First Trust Consumer Staples AlphaDEX Fund (NYSEArca: FXG) have been standout plays.
Year-to-date, XLP rose 4.8% while RHS increased 5.5% and FXG gained 5.9%. The two alternative index-based consumer sector ETFs also outperformed over the long-run, with RHS showing an average five-year annualized return of 15.9% and FXG returning an average 14.7%, compared to XLP’s 13.3% return.
FXG, though, has underperformed over the past year, rising 5.5%, compared to XLP’s 10.7% gain and RHS’s 14.7% increase.[related_stories]
Unlike XLP, which tracks a traditional market cap-weighted index of consumer staple stocks taken from the S&P 500, FXG and RHS track alternative indexing schemes.
Specifically, RHS provides equally-weighted exposure to cmpanies included in the S&P 500 Consumer Staples sector, which helps diminish concentration risk with a disciplined quarterly rebalancing methodology. The ETF includes 36 component holdings and its largest component is Archer Daniels Midland (NYSE: ADM) at 3.2% of the underlying portfolio.
Due to the fund’s indexing methodology, RHS includes a greater tilt toward mid-cap companies – the ETF’s market-cap breakdown includes 24.2% mega-caps, 53.9% large-caps and 21.0% mid-caps. The indexing methodology has also been working out for the Guggenheim offering as RHS is among the best performing ETFs in its Morningstar category and among the top 10 performing non-leveraged ETFs overall.
Additionally, FXG tracks an “enhanced” or smart-beta index 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 indexing methodology also makes the fund lean toward mid-sized companies, including 42.1% mid-caps, along with 44.1% large-caps and 13.7% mega-caps.
For more information on the consumer staples sector, visit our consumer staples category.
Guggenheim S&P Equal Weight Consumer Staples ETF