Consumer Staples Hitting Highs

A number of consumer staples ETFs have been on the move lately as investors shift to a defensive stance and look for lower volatility and higher yields. With the Dow trading at an all-time high it creates a fear in investors that another bubble is forming. This forces investors to consider less “risky” sectors such as consumer staples.

Historically when the stock market is rallying the consumer staples would lag because money would be flowing into riskier sectors. That has not been the case this time around as money has been making its way into both high risk and low risk sectors.

The two largest consumer staples ETFs hit new all-time highs this week as investors prepare for a pullback, but at the same time keep money in equities.

The SPDR Select Sector Consumer Staples ETF XLP tracks 42 publically traded consumer staple companies, most of which are large cap. The companies are spread out among six sectors with in the industry. The food & staples sector makes up about one-quarter of the portfolio, followed by household products at 20 percent. The top three individual companies that make up ETF are Procter & Gamble Company PG at13.5 percent, Coca-Cola Company KO at 9.4 percent, and Philip Morris International Inc. PM with a 7.9 percent holding. The ETF is up 10 percent over the last 12 months, and 6 percent over the last six months. An expense ratio of 0.16 percent is very low and puts it inline with its competitors.

The Vanguard Consumer Staples ETF VDC tracks companies that provide consumers with products that are considered to be non-discretionary. It is comprised of 102 companies with the top ten holdings making up 58 percent of the total portfolio. VDC has a similar composition to XLP with the top holdings being PG at 11.9 percent, KO at 8.5 percent, and PepsiCo Inc. PEP coming in at 7.2 percent. VDC has slightly outperformed XLP up 11 percent over the last 12 months, and 7 percent over the last six months. VDC has an expense ratio of 0.14 percent.

While investors may believe investing in consumer staples will shield a portfolio from a pullback, the strategy is not foolproof. If the market has one big leg higher before a significant pullback the consumer staples will likely lag. On the flip side, during a major pullback all equities will get hit and the two ETFs above will likely fall, but at a slower pace than its riskier peers.