Playing It Conservative With Small-Cap ETFs

Some obvious themes are emerging amid a poor start to 2016 for equities. Predictably, investors are favoring conservative, lower beta sectors such as consumer staples and utilities. Second, small-cap stocks and exchange-traded funds are struggling.

A combination of those themes via the PowerShares S&P SmallCap Consumer Staples Portfolio (PowerShares S&P SmllCp Csmr Stpls Pfo PSCC) has, at the very least, proven less bad than being invested in broader small-cap ETFs. PSCC, the small-cap answer to the popular Consumer Staples Select Sect. SPDR (ETF) XLP, is down 4.3 percent year-to-date compared to an average loss of about 10 percent of the Russell 2000 and S&P SmallCap 600 indices.

Related Link: Where To Find Less Bad Small-Cap ETFs

PSCC follows the S&P SmallCap 600 Capped Consumer Staples Index, a benchmark that, like its large-cap counterpart, can feature tobacco, textiles, food and beverage, and nondiscretionary retail stocks.

PSCC: A Food ETF In Disguise

Due to the fact that many of publicly traded makers of household and personal products are large-cap companies, PSCC allocates just 19.3 percent of its combined weight to those industry groups. With that, it can be said that PSCC is a food ETF in disguise, as it allocates two-thirds of its weight to food products manufacturers and another 8.6 percent to food and staples retailers.

Two stocks – B&G Foods, Inc. BGS and Snyder's-Lance Inc LNCE – dominate PSCC, combining for over 22 percent of the ETF's weight. PSCC's top 10 holdings combine for over 72 percent of the ETF's weight.

Low Volatility And Value

Though the low volatility factor and value factors have histories of outperforming over lengthy holding periods, PSCC has performed in-line with the S&P SmallCap 600 since coming to market nearly six years ago. Part of that might be attributable to the fact that over a quarter of the ETF's current lineup are considered growth stocks, and nearly 47 percent are small-cap blend stocks.

Since 2010, there have only been two years in which the consumer staples sector outperformed its consumer discretionary rival: 2011 and 2014. The S&P 500 gained 1.9 percent and 13.5 percent, respectively, in those years.

Small-cap investors appear to be preparing for staples to trump discretionary again this year, as they have added nearly $24 million to PSCC, a total exceed by just seven other PowerShares ETFs.