Investors are moving back into consumer staples ETFs, a tried and true investment strategy for times when the economy is uncertain.
The Invesco S&P 500® Equal Weight Consumer Staples ETF (RHS) has seen $202 million in net inflows year to date. After seeing outflows between September 1 and October 13, flows reversed, and the fund garnered $24 million in net inflows between October 14 and October 28, according to VettaFi.
RHS offers exposure to the consumer staples sector of the U.S. economy with a unique twist: The fund tracks an equal-weighted index, meaning that component companies receive approximately equal allocations. That results in exposure that is considerably more balanced than other alternatives.
“The market-cap weighted consumer staples sector is highly concentrated, with approximately 45% tied to just four stocks. An equal weighted approach limits the company specific risks,” Todd Rosenbluth, head of research at VettaFi, said. “Given the ongoing economic uncertainty, advisors are looking more closely at defensive sector strategies to participate in the upside but with some downside protection.”
Rosenbluth points to Procter & Gamble Company (PG), PepsiCo Inc (PEP), Coca-Cola Company (KO), and Costco Wholesale Corporation (COST), which dominate cap-weighted consumer staples sector ETFs.
Consumer staples is considered a defensive sector. This category includes essential products used by consumers, including foods and beverages, household goods, hygiene products, and alcohol and tobacco. Consumer staples are those products that people are unable—or unwilling—to cut out of their budgets regardless of one’s financial situation and the current economy.
The sector is non-cyclical, meaning that it is impervious to business cycles. The demand for consumer staples has historically remained relatively constant regardless of price fluctuations.
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