IYK ETF: What to Expect the Consumer Staples Industry In 2022
January 12 2022 - 4:28AM
Finscreener.org
Investors have been betting on
defensive consumer staples companies to hedge against market
volatility. This is evident from iShares U.S.
Consumer Goods ETF’s (AMEX:
IYK) that has gained 15.73% over the past year.
Moreover, the ETF gained 0.76% year-to-date, outperforming the
benchmark S&P 500 index’s 1.69% decline over this period.
IYK’s popular holdings include Procter &
Gamble (NYSE:
PG), Pepsico (NASDAQ: PEP), Coca-Cola
(NYSE:
KO), and
Phillips Morris International (NYSE:
PM).
Given its non-cyclical nature,
consumer staples companies tend to enjoy a stable growth rate over
the long term that also allow them to provide investors a regular
dividend.
With various macroeconomic
headwinds resulting in surging market volatility which is evident
from the CBOE Volatility Index’s 8.94% gains so far this year. So,
investors are expected to set aside a portion of their portfolios
toward these stable stocks that generate predictable cash
flows.
Below are some of the major
trends shaping the consumer staples stocks:
Covid-19
The initial wave of the pandemic
saw a surge in panic shopping, as people loaded up essentials
before lockdowns. This caused consumer staples products to sell out
like hotcakes, requiring shelves to be restocked before the average
depletion period.
As the omicron coronavirus cases
spread globally, causing several countries to reimpose partial
lockdowns, the demand for consumer staples products might skyrocket
soon. Thus, the renowned companies manufacturing day-to-day
essentials might witness surging sales and profit margins in Q1 of
2022.
High Inflation
The demand for consumer staples
products are expected to remain stable despite the inflation levels
rising to 40 year highs. Given the consistent demand levels, these
companies are expected to maintain their profit margins in the
upcoming quarters.
Moreover, as the markets remain
volatile with the benchmark S&P 500 and tech-heavy Nasdaq
100 indexes slumping year-to-date, consumer staples stocks can help
investors outperform the broader markets to generate positive
returns in the near term.
In addition, the Federal Reserve
has hinted toward hiking the interest rates by up a significant
margin this March, which might cause the broader equity markets to
take a hit again. However, consumer staples stocks are expected to
remain stable over this period, given the defensive nature of the
underlying companies.
Supply Chain Headwinds
Due to supply chain disruptions
and surging inflation levels, consumer Staples products are
expected to become more expensive in the upcoming months.
Additionally, rising COVID-19 cases around the world and shipping
container shortages, has meant supply chain headwinds intensified
over the past few months. As delivery shipments get delayed while
entering the borders and shipping fees and tolls increase, the
transportation barriers might intensify in the initial months of
the new year.
The consumer price index rose
6.8% in November last year, affecting consumer products
substantially. Moreover, as consumer spending remains high due to
record low unemployment rates and increasing wages, everyday items
are expected to be the first to witness a price hike
soon.
Bottom Line
Consumer staples have
historically underperformed the broader markets, but delivered
double digit gains annually. This trend is expected to continue in
2022 as well.
However, analysts predict stable
fast moving consumer goods (FMCG) stocks to beat the broader
markets in the near term, as the Fed’s hawkish policies and other
macroeconomic headwinds maintain pressure on equity
markets.
Furthermore, renowned consumer
staples stocks pay dividends periodically, making them ideal for
fixed income investors. Investing in these stocks can help
investors generate relatively higher returns compared to
fixed-income instruments. Moreover, with market volatility causing
riskier equities to witness frequent fluctuations, FMCG stocks are
expected to gain traction among retail investors who are willing to
hedge the market risks to a certain extent.
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