ETF of the Week: Consumer Staples Select Sector SPDR Fund (XLP)

ETF Trends CEO Tom Lydon discussed the Consumer Staples Select Sector SPDR Fund (XLP) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

The ETF offers exposure to the consumer staples sector, making it an appealing option for investors looking to implement a sector rotation strategy or tilt exposure towards corners of the U.S. market that may perform well during a downturn. XLP offers impressive liquidity, cost efficiency, and depth of exposure, making it one of the best ETF options for playing the consumer staples sector.

Looking closely at things, the consumer staples sector stands out as Americans hoard basic necessities. With that in mind, XLP is up 3.3% 1-week vs. the S&P 500, which is down 3.1% 1-week. Additionally, XLP  is up to $657 million in net inflows for the week ending March 19.

So, what’s going on? As Lydon points out, cities are declaring a state of emergency. California, New York state, among others, are urging millions of Americans to stay at home. Restaurants, clubs, and others have already shut down to contain the spread of the Coronavirus contagion. Consequently, consumers are clearing out supermarkets to prepare for the state of emergency and the new stay-at-home outlook.

Why are consumer stocks rallying? Amazon saw an unprecedented demand for essential items. The heavy demand has stressed the company’s supply chain, notably for groceries and personal goods. They planned on hiring 100,000 more people to meet the new workload.

Also, there’s a notable demand for food and cleaning products during the coronavirus COVID-19 outbreak. As is well-known, there are reports of supermarkets experiencing a run on goods, including toilet paper and basic foods. Similarly, reports from Walmart and Costco make it clear that the demand for basic staples is soaring. That in mind, Walmart plans to hire 150,000 hourly associates in the U.S. and announced $550 million in cash bonuses.

As Lydon explains, there’s a traditional defensive play with lower beta going on. Consumer staples have been a traditionally low volatile play. No matter what, come rain or shine, people still need basic food and toiletries. They also come with higher yields, which is especially attractive in a lower-for-longer yield environment.

With the Consumer Staples Select Sector SPDR Fund, it represents the consumer staples sector of the S&P 500. The top holdings include many known brands: Procter & Gamble 16.6%, Walmart 10.3%, PepsiCo 9.0%, Coca-cola 9.8%, Costco 5.5%, Mondelez International 4.6%, Philip Morris 4.1%, Colgate-Palmolive co 4.0%. Additionally, the sub-sector weights are as follows: household products 26.7%, beverages 23.9%, food staples retail 21.6%, food products 17.4%, tobacco 8.0%, personal products 2.5%. It makes for a fund that matters plenty right now, as consumers are still out there, taking on the staples they believe count.

Listen To Tom Lydon Talk XLP:

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