What Lies Ahead For Consumer Staples ETFs?

Backed by an improving economy and increasing consumer confidence, the consumer staples sector has been performing really well among most product categories over the past few months.

Stepped-up economic activities, better business conditions, housing market recovery, a buildup in inventories and improving labor market are some favorable economic indicators that play a key role in raising buyers’ confidence. (Read: Halloween Less Scary This Year; 4 ETF Treats)

Consumer confidence – a key determinant of the economy’s health – surged for the second consecutive month in September and is now at its highest level since the recession, indicating that the economy is on the recovery path. The consumer confidence index, which had increased to 101.8 in August, further improved in September and now stands at 104.1. Additionally, the expectations index improved from 86.1 in August to 87.8. The index surged on consumers’ expectations of a favorable labor market, thus signaling improving economy.

However, several events like the debate between Donald Trump and Hillary Clinton for the U.S. Presidential election 2016, along with a sudden surge in oil prices and uncertainties surrounding the Fed rate hike, are expected to spur market volatility and unnerve investors in the near term. Further, with the stage all set for the third-quarter earnings season, investors’ anxiety is at its peak as to how the quarter will unfold amid mixed economic data, thus fueling market speculations. (Read: Dogs to Fall Short of Dow? ETFs in Focus)

Needless to say, the equity markets have become extremely volatile and these uncertainties can negatively impact the economy. However, some indicators also hint that the abovementioned worries are short-lived and the economy is on a recovery mode, so undoubtedly the consumer staples sector presents itself as a lucrative investment hub amid such a backdrop.

Playing the Sector through ETFs

Owing to its defensive nature, this sector is likely to outperform when equity markets are bearish and underperform when bullish.

ETFs can act as an excellent investment medium for those who are interested in a long-term exposure within the consumer staples sector. (Read: ETFs to Play 3 Affordable Sectors)

For those keen on taking a look at consumer staples, we have highlighted a few ETFs tracking the industry, any of which could be an attractive pick:

Consumer Staples Select Sector SPDR ETF (NYSE:XLP) (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 comprises 37 stocks of companies that manufacture and sell a range of branded consumer packaged goods. The top holdings include The Procter & Gamble Co. (PG), The Coca-Cola Company (NYSE:KO) and Philip Morris International, Inc. (NYSE:PM). The fund’s expense ratio is 0.14% and it pays out a dividend yield of 2.47%. XLP had about $8.9 billion in assets under management as of Oct 14, 2016.

Vanguard Consumer Staples ETF (VDC):

Initiated on Jan 26, 2004, VDC is an ETF that 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 99 stocks, with the top three holdings being Procter & Gamble, Coca-Cola and PepsiCo, Inc. (NYSE:PEP). It charges 0.10% in expense ratio, while the yield is 2.33% as of now. VDC managed to attract $4.2 billion in assets under management as of Sep 30, 2016.

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 42 consumer staples securities, with the top holdings being Ingredion, Inc. (INGR), Bunge Limited (BG) and Nu Skin Enterprises, Inc. (NUS). The fund’s expense ratio is 0.62% and the dividend yield is 1.72%. It had $2.19 billion in assets under management as of Oct 14, 2016.

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 37 stocks, with the top holdings being Coty Inc. (COTY), ConAgra Foods, Inc. (NYSE:CAG) and Molson Coors Brewing Co. (TAP). The fund’s expense ratio is 0.40% and dividend payout 1.75%. RHS had about $608.2 million in assets under management as of Oct 17, 2016.

Fidelity MSCI Consumer Staples ETF (FSTA):

FSTA, launched on Oct 21, 2013, is an ETF that seeks investment results corresponding to MSCI USA IMI (LON:IMI) Consumer Staples Index. This is a cap-weighted fund and constitutes 101 stocks, with the top holdings being Procter & Gamble, Coca-Cola and PepsiCo. The fund’s expense ratio is 0.08% and the dividend yield is 2.46%. FSTA had about $281.0 million in assets under management as of Sep 30, 2016.

PowerShares DWA Consumer Staples Mom ETF (PSL):

PSL, launched on Oct 12, 2006, is an ETF that seeks investment results corresponding to DWA Consumer Staples Technical Leaders Index. This is composed of total 31 common stocks from the NASDAQ US Benchmark Index, with the top holdings being Altria Group, Inc. (NYSE:MO), Church & Dwight Co Inc. (CHD) and Constellation Brands (NYSE:STZ). The fund’s expense ratio is 0.50% and dividend yield is 1.11%. It had about $265.1 million in assets under management as of Oct 17, 2016.

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SPDR-CONS STPL (XLP): ETF Research Reports

VIPERS-CONS STA (VDC): ETF Research Reports

FT-CONSUMR STP (FXG): ETF Research Reports

GUGG-SP5 EW C S (RHS): ETF Research Reports

FID-STAPLES (FSTA): ETF Research Reports

PWRSH-DW CON ST (PSL): ETF Research Reports

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