Being defensive in nature, the consumer staples sector has been on a tear this year. The space is home to a variety of items like food & beverages, non-durable household goods, hypermarkets and consumer supercenters that are essential for daily needs. These products see steady demand even during an economic downturn due to their low level of correlation with economic cycles.
As such, these generally act as a safe haven amid political and economic turmoil. Stocks in these sectors generally outperform during periods of low growth and high uncertainty.
And guess what? Trade dispute and geopolitical tensions have led to strong growth in the sector. Though uncertainty surrounding the U.S.-China trade deal has been lingering through the year, the new tariff drama has made investors jittery heading into the busiest holiday season (read: Safe-Haven ETFs Back in Demand on Trade Gyrations).
This is especially true as President Donald Trump is planning to restore tariffs on steel and aluminum imports from Brazil and Argentina, and proposed tariffs of up to 100% on $2.4 billion worth of French products. Also, trade talks between Washington and Beijing have stalled as Trump said that he will wait until the November 2020 election to strike a deal. The President previously touted that he will impose tariffs on Chinese goods from Dec 15, as announced, if the deal is not reached. This has dented hopes of ending the year-long trade war, resulting in risk-off sentiments.
Additionally, rounds of downbeat data lately signal that economic growth is slowing, thereby raising the appeal for consumer staples stocks. The U.S. manufacturing sector contracted for the fourth straight month in November with a steep drop in new factory orders. U.S. construction spending also unexpectedly fell in October as investment in private projects tumbled to its lowest level in three years.
That said, we have highlighted a few consumer staples ETFs that hit new one-year highs in the last trading session. Any of the following funds could be excellent picks for investors seeking to benefit from the defensive flight. All these products carry a Zacks ETF Rank #1 (Strong Buy) or 3 (Hold):
Consumer Staples Select Sector SPDR Fund (XLP - Free Report) : 52-Week High - $62.49
This is the most popular consumer staples ETF with AUM of $13.3 billion and follows the Consumer Staples Select Sector Index. The fund charges 13 bps in fees per year from investors and trades in heavy volume of nearly 13 million shares a day. In total, the fund holds about 33 securities in its basket. From a sector perspective, beverages takes the largest share at 25.4% while household products, food and staples retailing, and food products account for a double-digit allocation each. XLP has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Fearing a Replay of December 2018? ETF Strategies to Try).
Vanguard Consumer Staples ETF (VDC - Free Report) : 52-Week High - $159.31
This fund manages a $5.4 billion asset base and has exposure to a basket of 89 consumer stocks by tracking the MSCI US Investable Market Consumer Staples 25/50 Index. It charges a fee of 10 bps per year and trades in a good volume of around 115,000 shares per day on average. The product is widely spread across household products, soft drinks, packaged foods & meat, and hypermarkets & super centers that make up for a double-digit allocation each. The fund has a Zacks ETF Rank #1 with a Medium risk outlook.
Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report) : 52-Week High - $37.29
This fund tracks the MSCI USA IMI Consumer Staples Index, holding 90 stocks in its basket. It is widely diversified across beverages, household products, food and staples retailing, food products, and tobacco. The ETF has amassed $561.1 million in its asset base, while trading in moderate volume of around 131,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #1 with a Medium risk outlook.
First Trust Consumer Staples AlphaDEX Fund (FXG - Free Report) : 52-Week High - $49.41
This ETF provides exposure to 36 consumer staples stocks by following an AlphaDEX methodology and ranks stocks in the space by various growth and value factors, thereby eliminating the bottom-ranked 25%. About half of the portfolio is allocated to food & tobacco followed by food & drug retailing (23.5%), beverages (13%) and personal household products & services (8.6%). The fund has amassed $311 million in its asset base and sees a moderate volume of 72,000 shares a day on average. Expense ratio comes in at 0.64%. The product has a Zacks ETF Rank # 4 (Sell) with a Medium risk outlook (read: all the Consumer Staples ETFs here).
Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS - Free Report) : 52-Week High - $143.70
This fund tracks the S&P Equal Weight Consumer Staples Index, holding 33 stocks in equal weights. Food products takes the largest share at 39.9% while beverages, food & staples retailing, and household products round off the next three spots with double-digit exposure each. The ETF has amassed $506.5 million in its asset base and trades in average daily volume of 29,000 shares. It charges 40 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.
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