The Time Could be Right to Revisit Staples ETFs

The Consumer Staples Select SPDR (NYSEArca: XLP) and rival consumer staples exchange traded funds were stellar performers in the first half of this year, but much of that ebullience has faded in recent months.

Concerns about the sector’s lofty valuations and the Federal Reserve raising interest rates in December, which would have likely pinched rate-sensitive defensive sectors, have recently plagued staples stocks and XLP.

However, Donald Trump’s surprising victory in Tuesday’s presidential election could mean defensive sectors, including staples are worth revisitng.

Related: Sticking With Staples ETFs: Is it a Good Idea?

Defensive sectors often trade at premium valuations relative to the broader market and that is certainly the case at the moment with the consumer staples and utilities groups.

That does not mean investors should flee richly valued groups such as consumer staples and utilities. In fact, the case for these higher-yielding sectors could be getting a boost as bond markets are pricing in diminishing chances of the Federal Reserve boosting interest rates next month. In fact, many market observers believe Trump’s victory means the Fed cannot proceed with raising borrowing costs this year.


Rivals to XLP, which also have substantial exposure to food stocks, include the Vanguard Consumer Staples ETF (NYSEArca: VDC) and the Fidelity MSCI Consumer Staples Index ETF (NYSEArca: FSTA). Many of the marquee holdings in the holdings are slightly to clearly richly valued relative to the broader market.