Entering Monday, the Consumer Staples Select SPDR (NYSEArca: XLP) was down 8% year-to-date while the S&P 500 was higher by 3.8%. It is not often that the normally conservative consumer staples sector lags the broader market by such a wide margin.
XLP devotes more than half its weight to beverage makers and food and staples retailers. Tobacco companies, which have recently seen their shares tumble, account for almost 12% of XLP’s roster. Dow components Procter & Gamble (NYSE: PG) and Coca-Cola (NYSE: KO) combine for over 21% of XLP’s weight.
Making matters worse for XLP and rival staples ETFs is the significant margin by which the funds are trailing consumer discretionary ETFs, including the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY).
“The dismal performance of the ‘staples’ group is sharply contrasted by the breakout in the Consumer Discretionary Select Sector SPDR Fund (XLY), which has rallied about 14% since the start of the year,” reports Schaeffer’s Investment Research. “The dichotomy here is easily explained by a quick skim of the top holdings for each fund. While Amazon, the tech/retail hybrid powerhouse, accounts for nearly 24% of XLY’s weight, the top holdings for XLP read like a “who’s who” of the innermost aisles of your neighborhood grocery store.”
Why Consumer Staples Are Struggling
XLP provides “exposure to companies from the food and staples retailing, beverage, food product, tobacco, household product and personal product industries in the U.S.,” according to State Street.
Investors considering the consumer staples sector may want to look at some historical data points.
“In previous instances where XLP’s relative strength versus the S&P has fallen below 0.85, the average S&P returns over the next six-month and one-year time frame have lagged the norm,” according to Schaeffer’s. “The six-month returns are particularly weak relative to the S&P’s ‘anytime’ performance, looking at both the average return and the percentage of positive returns. And since this latest signal flashed on April 10, that six-month time frame roughly corresponds with the May-October period that we’ve already established as being the weakest six months of the year for the stock market.”
Year-to-date, investors have pulled $537.44 million from XLP.
Rivals to XLP include the Vanguard Consumer Staples ETF (NYSEArca: VDC) and the Fidelity MSCI Consumer Staples Index ETF (NYSEArca: FSTA).
For more information on the consumer sector, visit our consumer staples category.