ETFs Vs. Their Most Popular Stocks (XLP, MOO, XLE)

A couple of weeks ago, we cordially disagreed with an examination of stocks vs. ETFs that essentially proclaimed the former is better if one has the good fortune of actually picking an ETF's best stock. To be fair, there a mea culpa involved. It lasted less than two minutes. Oh well, what's done is done. Some people love ETFs, some people hate ‘em. That's life and the ETF vs. stocks argument inspired us to take a look at some ETFs against their most recognizable constituents. Doesn't sound like a valid exercise? Well, think about it this way: Many trader and investors use ETFs as proxies for certain stocks or to get exposure to select names without owning the shares directly. For example, the Technology Select Sector SPDR XLK is probably being used by a lot of folks as a way of getting Apple AAPL exposure. Apple, XLK's top holding, is pushing $550 a share. XLK flirts with $30. Apple is clearly the most recognizable name in XLK and is outperforming the ETF, but that's not universally the case in ETF land. Let's look at some other examples. Consumer Staples Select Sector SPDR XLP This one is tricky because XLP is home to so many recognizable companies. There's a lot of Dow stocks in XLP and it's an ETF Warren Buffett would love. We selected Coca-Cola KO, PepsiCo PEP and Procter & Gamble as XLP most recognizable constituents, plus they combine for a quarter of the fund's weight. Year-to-date, XLP has outperformed all of them and Wal-Mart WMT, too. Energy Select Sector SPDR XLE This one surprised us a little bit. Exxon Mobil XOM and Chevron CVX, the two largest U.S. oil companies, are arguably the first two names a random a person on the street would come up with when asked to name three U.S. oil producers. They also combine for about a third of XLE's weight. Curious is the performance gap between those two stocks and the ETF, as in XLE has been a far better bet year-to-date. Market Vectors Agribusiness ETF MOO See, we believe in equal opportunity in this space and we admit when we're wrong. We don't think we're going out on a limb by saying MOO's top-three holdings – Monsanto MON, Potash POT and Deere DE – are also the most recognized names in the fund. Well, Monsanto has outperformed all of them year-to-date, but let's not be hasty. MOO has outpaced Potash and Deere, by a decent clip we might add. iShares Dow Jones U.S. Oil Equipment & Services Index Fund IEZ It's not a criticism, but we'd venture to say that while most retail investors know the oil services business exists, they can probably only name one or two companies from this group. We'd also venture to say, because of former Vice President Dick Cheney, Halliburton HAL is the oil services name most identifiable to ordinary folks. The iShares Dow Jones U.S. Oil Equipment & Services Index Fund has crushed Halliburton, its third-largest holding this year. Again, to be fair, Schlumberger SLB has oil services brand recognition, too, and has outperformed the ETF year-to-date.