Under The Hood: Defense With A Global Tilt

As it happens this is the ideal week in which to discuss adding some defensive positions to your ETF portfolio and what better sector to do that with than consumer staples? Consumer staples aren't sexy, but they have risen to near legendary status as both shelter-from-the-storm and dividend plays. Looking beyond the confines of U.S. borders, investors can find of compelling options when it comes to investing in the staples, so let's go global with today's Under The Hood candidate: The iShares S&P Global Consumer Staples Index Fund KXI. Nearly five-years old and home to 100 stocks, KXI's stats are sound as volume is north of 35,000 shares a day and assets under management surpass $345 million so investors can at least be assured that KXI, like many of its constituents, will be around for the long haul. What follows is not a knock, just a statement of fact: KXI says “Global” in its title, but almost 51% of the ETF's holdings are U.S.-based company's. Yes, Nestle NSRGY, the world's largest food company, is the fund's top holding, but it's odd that stocks like Unilever UN don't get bigger weights in this ETF. This brings up an interesting scenario for investors: If one is going to purchase a staples ETF that is dominated by the likes of Procter & Gamble PG, Coca-Cola KO, PepsicCo PEP and Altria MO, doesn't it make sense to go with the fund with lower fees? In other words, if you can live without Nestle, the Consumer Staples Select Sector SPDR XLP will get you involved with the same U.S.-based companies as KXI with a superior expense ratio. XLP's fees are just 0.2% compared to 0.48% for KXI. Frankly, the investor that is just dying for exposure to Nestle without wanting to own the stock outright would do better to pare the iShares MSCI Switzerland Index Fund EWL with XLP. EWL offers a 20.6% weight to Nestle, more than double what KXI offers and is obviously a play on a reliable developed market. The bottom line is KXI is a fine ETF, but when playing defense, it actually pays be defensive and look for the best fees.