Problem Children Aren't Derailing Consumer Staples ETFs

Give the Consumer Staples Select Sect. SPDR (ETF) XLP some credit. The largest consumer staples exchange-traded fund by assets is up 6.6 percent year-to-date despite strong dollar headwinds and the subsequent challenges created by speculation, though now dwindling, that the Federal Reserve will soon raise interest rates.

Add to that, XLP has mustered its >6.6 percent gain, one of the better year-to-date showings among the nine sector SPDR ETFs, with no help from Procter & Gamble Co. PG or Wal-Mart Stores, Inc. WMT.

Procter & Gamble, the world's largest maker of household products, and Wal-Mart, the world's largest retailer, are two of just seven members of the Dow Jones Industrial Average down at least 10 percent this year. Procter & Gamble and Wal-Mart are XLP's largest and sixth-largest holdings, respectively, combining for 16.5 percent of the ETF's weight.

Related Link: Top 4 NYSE Stocks In The Beverages-Soft Drinks Industry

Even with the struggles of Procter & Gamble, Wal-Mart and some other marquee staples stocks, XLP managed to hit an all-time high last week. In fact, it's the so-called "sin stocks" or "problem children" stocks – such as soft drink and tobacco makers – are leading staples ETFs higher.

The 'Sin Stock' Catalysts

The Dow Jones U.S. Tobacco Index recently hit an all-time high and the Dow Jones U.S. Soft Drink Index is close to doing the same.

“Also in the beverage arena, soft drink companies have been strong. As a group, they too currently look to be in position to make a run at all-time highs once they break out of what looks like a bull flag on the chart,” said Dana Lyons of J. Lyons Fund Management in a recent blog post.

What This Means For XLP

That is good news for XLP. The ETF allocates nearly 37 percent of its combined weight to beverage and tobacco stocks.

Dow component The Coca-Cola Co KO, Philip Morris International Inc. PM, Altria Group Inc MO and PepsiCo, Inc. PEP are all top 10 holdings in the ETF.

Two Other 'Sin'-Filled ETFs

The PowerShares Dynamic Food & Beverage(ETF) PBJ is another option to consider. As a dedicated food and beverage ETF, PBJ features no tobacco stocks.

However, PBJ's combined weight to PepsiCo, Coca-Cola Bottling Co. Consolidated COKE and Dr Pepper Snapple Group Inc. DPS is 11.6 percent.

PBJ is up nearly 12 percent.

The PowerShares Dynamic Consumer Sta. (ETF) PSL is another staples ETF to consider for investors looking for beverage and tobacco exposure.

PSL, a momentum-based ETF, allocates nearly 27 percent of its combined weight to beverage and tobacco names. PSL is home to 42 stocks and six of its top 10 holdings are either tobacco, spirits or soft drink makers.

Knowing that, perhaps it is not surprising that PSL is this year's top-performing staples ETF. Investors have added $231.6 million to PSL this year, a total exceeded by just six other PowerShares ETFs.