Related: Time to Nibble at Consumer Staples ETFs?
Defensive sectors often trade at premium valuations relative to the broader market and that is certainly the case at the moment with the consumer staples and utilities groups. The consumer staples sector is also viewed as inversely correlated to rising interest rates. The Federal Reserve hiked rates again Wednesday and hinted that two more rate hikes could be coming later this year.
Cyclical sectors are this year’s best-performing groups. That could be further confirmation investors expect interest rates to rise because cyclical sectors usually perform well as borrowing costs increase.
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.