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ETF News And Commentary

One of the most famous names in the consumer products world – Procter & Gamble (PG) – reported a mixed-bag fourth-quarter 2014 on August 1, before the opening bell with earnings surpassing the estimate and the top line missing by a whisker. However, the issuance of a positive full fiscal 2015 guidance spread optimism among investors.

P&G 4Q14 Earnings in Focus

The world’s largest consumer-products maker’s fourth-quarter adjusted earnings (excluding restructuring cost and charges for European legal matters) of 95 cents per share beat the Zacks Consensus Estimate of 91 cents by 4.4%. Also, earnings surged 20% in the quarter overruling currency headwinds of 4 cents. Pricing gains, cost containment and reduced taxes were the reasons behind this jump.

Though net sales slipped 1% to $20.16 billion due to a stronger dollar, revenues fell short of the Zacks Consensus Estimate of $20.397 billion.  Organically (excluding the impact of acquisitions, divestitures and foreign exchange), revenues were up 2%. Revenue gains were realization driven rather than volume driven.

Further, Procter & Gamble has given an encouraging guidance for fiscal 2015. The company expects core earnings per share to grow in the mid single-digit range while sales increase is expected in the low single-digit range. Organic sales are expected to climb low-to-mid single-digit range, indicating optimism.

Following a decent earnings release, shares of PG climbed about 3% in the key trading session of August 1 on double the normal volume and added about 0.1% after hours.

ETF Impact

The rally in P&G shares was reflected in the ETF world, with consumer staples ETFs advancing in the key trading session of Friday. Many of the key funds in this segment have a double-digit allocation to the consumer product giant suggesting that the performance of the fund is highly dependent on P&G’s performance.

In particular, higher trading was seen in the following three ETFs, as these have the largest allocations to Procter & Gamble (see all consumer staples ETFs here):

Consumer Staples Select Sector SPDR Fund (XLP)

The most popular consumer ETF on the market, XLP, follows the S&P Consumer Staples Select Sector Index. The fund invests about $5.75 billion of assets in 42 holdings. Of these firms, the in-focus P&G takes the first spot, making up roughly 13% of the assets.

In terms of sector exposure, the fund is skewed toward food & staples retailing which makes up for one-fourth share, closely followed by household products (20%) and beverages (19.5%).

The fund charges 18 bps in fees per year from investors. The fund has returned over 2% so far this year and 0.8% on the day P&G reported earnings. XLP currently has a Zacks ETF Rank of 3 or ‘Hold’ with a ‘Low’ risk outlook (read: Coke and Pepsi Earnings Put Consumer ETFs in Focus).

Vanguard Consumer Staples ETF (VDC)

This fund manages a $1.78 billion asset base and provides exposure to a basket of 106 consumer stocks by tracking the MSCI US Investable Market Consumer Staples 25/50 Index. The product charges a low fee of 14 bps per year from investors.

Again here, P&G is the top firm with 11.3% allocation. The product is widely spread across household products, soft drinks, packaged foods & meat, tobacco and hypermarkets & super centers, as each makes up a double-digit allocation in the fund.

VDC has added 2.4% in the year-to-date frame (as of August 1, 2014) and 0.8% on August 1. The fund has a Zacks ETF Rank of 3 or ‘Hold’ with a ‘Low’ risk outlook (read: Philip Morris Earnings Put Consumer Staples ETFs in Focus).

iShares Dow Jones US Consumer Goods Sector ETF (IYK)

This ETF tracks the Dow Jones U.S. Consumer Goods Index, giving investors exposure to the broad consumer staples space. The fund holds about 118 stocks in its basket with AUM of $454.1 million while charging a slightly higher fee of 43 bps per year from investors.

Like the other two, the stock-under-consideration occupies the top position in the basket with 10.8% of assets. However, the fund is widely diversified across sectors as none of these make up more than 18% of IYK.

The fund is up about 1.2% so far this year and added 0.4% on August 1. The product has a Zacks ETF Rank of 3 with a ‘Medium’ risk outlook.

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