Growth stocks, particularly shares of companies that are losing money, are slumping in the early innings of 2022, sparking fears that rising Treasury yields and inflationary pressures could crimp the beloved technology sector.
Investors can shelter from the storm in a familiar place: the consumer staples sector. Consumer staples isn’t the most glamorous sector, but in the early stages of 2022, the group is living up to its reputation for durability in weak markets. For example, the First Trust Consumer Staples AlphaDEX Fund (FXG), is higher by 1.74% year-to-date and residing near all-time highs while the S&P 500 is lower this month.
The $322.71 million FXG follows the StrataQuant® Consumer Staples Index, confirming that this isn’t the traditional staples exchange traded fund. By eschewing weighting by market capitalization, FXG offers a more diversified approach to this low-volatility sector. For example, the largest holding in the First Trust ETF — Tyson Foods (NYSE:TSN) — accounts for 4.37% of the fund’s weight. Conversely, Procter & Gamble (NYSE:PG) accounts for 16.19% of the S&P 500 Consumer Staples Index.
FXG could also offer investors some protection from inflation and rising interest rates — two themes weighing heavy on investors’ minds today.
“While stocks, in general, fare better than bonds during periods of high inflation, our theme of Inflation Stocks includes companies from the banking, insurance, consumer staples, and energy sector that could be more likely to benefit from high inflation and possibly higher interest rates,” reports Trefis.
FXG allocates almost 61% of its weight to food producers and over 29% of its roster to drug, grocery, and personal care stores. It devotes about 10% of its total weight to beverage and tobacco stocks. That’s a marked difference from the S&P 500 Consumer Staples Index, which devotes 34.65% of its roster to those two industries.
The StrataQuant® Consumer Staples Index offers a fresh approach to an often-boring sector by combining growth and value factors, including “three, six and 12-month price appreciation, sales to price and one year sales growth, and book value to price, cash flow to price and return on assets,” according to First Trust.
Over the long term, which is highly applicable to investing in consumer staples, FXG’s strategy works. For the 10 years ending in 2021, FXG’s underlying index beat both the S&P 500 Consumer Staples Index and the Russell 1000 Consumer Staples Index.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.