A Comprehensive Guide to Consumer Staples ETF - ETF News And Commentary
March 05 2014 - 12:00PM
Zacks
The economic backdrop for
the consumer staples sector remained more or less weak in 2013 due
to a difficult consumer spending environment. Middle-class
consumers struggled to cope with rising gas prices, delayed income
tax refunds and higher payroll taxes. In addition, difficult
operating conditions in Europe and a slowdown in some major
emerging countries threatened growth. (Read: 3 Energy ETFs to buy
on Ukraine crisis)
Consumer staple companies have been witnessing sluggish growth in
the developed markets, due to market saturation, which along with
lower disposable incomes and increased competitive activities have
added to their woes. As a result, many of them have been looking at
faster growing emerging markets.
Relative to the mature North American and European markets,
emerging markets such as Brazil, India, China, Mexico, Russia and
Southeast Asia are still untapped. That’s a good strategy in the
long run, but the near-term outlook for many of these markets
remains uncertain. The ongoing currency turmoil is particularly
problematic, as a stronger dollar reduces the value of outside-U.S.
sales and in turn limits growth.
This uncertain macro environment in U.S. as well as in the
international markets is a big reason why many companies in the
sector have lowered their guidance for 2014. With top-line growth
hard to come by, many companies have been focusing on cost
controls, acquisitions and share buybacks to boost the bottom-line.
(Read: 3 ETFs to buy on encouraging retail stock earnings)
In a crowded and competitive space, consumer product companies need
to regularly innovate and upgrade their brands to create
differentiated value propositions for their customers and to remain
successful.
In order to boost profits and top-line growth, most consumer
staples companies are divesting low-margin brands, improving the
supply chain and implementing cost-reduction initiatives. These
help to reduce the effects of inflating commodity costs and other
input costs, which have remained a drag on margins of most
companies in this sector. (Read: Bank on dividends with these
financial ETFs)
Many consumer staple companies are also carrying out acquisitions,
both domestically and internationally, to expand their existing
customer base and product lines into new markets. Some of them are
also forming partnerships to take a lead in this challenging
environment.
Playing the Sector through ETFs
Given the defensive nature of this sector, it will outperform when
equity markets are more bearish and underperform when bullish. The
ups and downs of the sector due to the U.S. and global exposure can
be played with a wide array of ETFs. (See all Consumer Staples ETFs
Here).
Consumer Staples Select Sector SPDR ETF (XLP):
Launched on Dec 16, 1998, XLP is an ETF that seeks investment
results corresponding to the S&P Consumer Staples Select Sector
Index. This fund consists of 42 stocks of companies that
manufacture and sell a range of branded consumer packaged goods,
with the top holdings being Procter & Gamble
Co. (PG), The Coca-Cola Co. (KO) and
Philip Morris International Inc (PM).
The fund’s expense ratio is 0.16% and it pays out a dividend yield
of 2.47%. XLP has about $5.5 billion in assets under management as
of Feb 26, 2014.
Vanguard Consumer Staples ETF (VDC):
Initiated on Jan 26, 2004, VDC tracks the performance of the MSCI
US Investable Market Consumer Staples 25/50 Index. It measures the
investment return of large-, mid-, and small-cap U.S. stocks in the
consumer staples sector. The fund has a total of 110 stocks, with
the top three holdings being Procter & Gamble, Coca-Cola and
Wal-Mart Stores Inc. (WMT).
It charges 0.14% in expense ratio, while the yield is 2.28%. VDC
has managed to attract $1.8 billion in assets under management till
Jan 31, 2014.
First Trust Consumer Staples AlphaDEX (FXG):
FXG, launched on May 8, 2007, follows the equity index called
StrataQuant Consumer Staples Index. FXG is made up of 38 consumer
staples securities, with top holdings being WhiteWave Foods
Company (WWAV), Tyson Foods Inc. (TSN)
and Constellation Brands, Inc. (STZ). The fund’s
expense ratio is 0.70% and the dividend yield is 0.94%.Iit has
$769.4 million in assets under management as of Feb 26, 2014.
Guggenheim S&P 500 Equal Weight Consumer
Staples (RHS):
Launched on Nov 1, 2006, RHS is an ETF that seeks investment
results corresponding to the S&P 500 Equal Weight Index
Consumer Staples. This is an equal-weighted fund and constitutes 40
stocks, with the top holdings being Beam Inc.
(BEAM), Walgreen Co. (WAG) and Tyson Foods
Inc.
The fund’s expense ratio is 0.50% and pays out a dividend yield of
1.54%. RHS has about $108.9 million in assets under management as
of Jan 31, 2014.
PowerShares Dynamic Consumer Staples (PSL):
PSL, launched on Oct 12, 2006, follows the Dynamic Consumer Staples
Sector Intellidex Index. It comprises 42 stocks that are
principally engaged in providing consumer goods and services that
have non-cyclical characteristics, including tobacco, textiles,
food and beverage, and non-discretionary retail. Top holdings
include United Rentals Inc. (URI), Church
& Dwight Co Inc. (CHD) and Whole Foods Market
Inc. (WFM).
The fund’s expense ratio is 0.65% and the dividend yield is
1.30%.
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FT-CONSUMR STP (FXG): ETF Research Reports
PWRSH-DW CON ST (PSL): ETF Research Reports
GUGG-SP5 EW C S (RHS): ETF Research Reports
VIPERS-CONS STA (VDC): ETF Research Reports
SPDR-CONS STPL (XLP): ETF Research Reports
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