Underperforming Consumer Staples ETFs Reflect Shifting Risk Appetite | ETF Trends

As the markets go into full swing in the new year, traditional consumer sector-related ETFs are beginning to fall behind the broader market, reflecting investors’ shifting risk tolerance.

The Consumer Staples Select Sector SPDR ETF (NYSEArca: XLP), the largest exchange traded fund tracking the consumer staples sector, gained 2.5% year-to-date and experienced $207.8 million in net outflows so far this year, according to XTF data. In comparison, the SPDR S&P 500 ETF (NYSEArca: SPY) has returned 5.4% so far.

“When the market is in full risk-on mode like it is so far this year, you don’t expect this sector to be the shining star or the darling of your portfolio,” Scott Snyder, portfolio manager at ICON Advisers, told Wall Street Journal.

Shares of companies producing basic consumer goods are underperforming the broader U.S. markets in January, and observers are attributing the underperformance partly due to disappointing earnings from stalwarts like McCormick & Co. Inc., Colgate-Palmolive Co. and Kimberly-Clark Corp., along with signs that investors are willing to take on more risk in other areas of the market.

January consumer staples performance

January’s consumer staples performance is sharp contrast from late last year when some found relative safety in this sector, which is typically popular during periods of volatility since investors would usually rely on consumer staples’ dividend yields and the steady nature of their businesses to offset the broader volatility. Since consumers will typically need to buy the products that staples firms provide regardless of market or economic conditions, investors tend to view the sector as a haven or defensive play.

“As the market continues to go up, we’re slowly taking the shackles off,” Ken Mahoney, president at Mahoney Asset Management, told the WSJ, referring to investors’ recent rotation out of safety stocks like staples and utilities.

On the other hand, cyclical and more economically sensitive sectors are outperforming this year. For example, the Energy Select Sector SPDR (NYSEArca: XLE) increased 9.0%, Financial Select Sector SPDR (NYSEArca: XLF) gained 8.4% and Industrial Select Sector SPDR (NYSEArca: XLI) advanced 9.2% year-to-date.

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