Although the American stock market is down slightly on the year, not all sectors have had such an uninspired performance. Industries that are focused on more defensive corners of the economy such as the consumer, utilities, or health care, have had a pretty solid year, outgaining the market by close to 1,000 basis points in some cases. The consumer sector, and especially firms tracking the staples market, has done very well thanks to the robust demand for these firms’ important products as well as the low levels of correlation and high dividends that these securities can provide to a portfolio.
Yet, by many counts, there are more than a dozen ETFs tracking the consumer staples space, giving investors a wealth of choices in order to achieve exposure to this defensive sector. These funds allow for the segmentation of the segment by region as well as offering a number of options for those seeking to achieve a focus on a certain style or size (see ETFs vs. Mutual Funds). While each fund offers its own pros and cons, we have decided to take some of the best performing ones in the group under the microscope so that investors can have a better understanding of the key differences between some of the leaders in the category:
Vanguard Consumer Staples ETF (VDC - ETF report) +10.7% year-to-date
This ultra-low cost option could be an excellent choice for those seeking to play the space as cheaply as possible. The fund tracks a broad basket of consumer staples firms, allocating assets across 110 companies in total. In terms of sector exposure, household products, soft drinks, and packaged foods & meats take the top three spots, making up at least 17.5% each. For individual holdings, a list of blue chips dominate with Procter & Gamble (PG - Analyst Report) and Coca-Cola (KO - Analyst Report) taking up the top two and comprising nearly 20% of total assets (see Top Three Highest Yielding Equity ETFs).
Consumer Staples Select Sector SPDR (XLP - ETF report) +11.0% year-to-date
For those who value liquidity above all else, it is hard to beat XLP and its nearly 5.8 million daily average volume. The fund tracks a smaller basket than its Vanguard counterpart, giving access to about 41 companies in any of the following areas; food and drug retailing, beverages, food products, tobacco, household products, and personal products. Of these segments, food & staples retailing, household products, and food products, each make up at least 20% of the holdings, suggesting a tilt towards food and retail firms. Top individual holdings are Procter & Gamble (14.9%) and Phillip Morris International (PM - Analyst Report) which makes up 9.4% of the total portfolio (read Go Local With Emerging Market Bond ETFs).
First Trust Consumer Staples AlphaDEX ETF (FXG - ETF report) +12.5% year-to-date
If a slightly more active approach suits your investment style, FXG is the way to go in the consumer staples corner of the ETF world. The fund employs the AlphaDEX methodology which seeks to rank stocks on growth and value factors in order to determine weightings. Investors should also note that the bottom-ranked 25% are also excluded from the fund, potentially giving FXG a more concentrated approach than its counterparts (see Three Outperforming Active ETFs).
Thanks to this focus, FXG holds just 36 securities while putting close to 50% of assets in food products. In terms of individual holdings, instead of mega corps, firms such as Smithfield Foods and Tyson Foods (TSN - Analyst Report) take the two top spots giving the product a tilt towards smaller securities. Investors should note, however, that FXG is close to 3.5 times more expensive than the other two products on the list charging investors 70 basis points a year in fees. Fortunately, the product has more than made up for these extra fees in capital appreciation as the First Trust fund is the best performing ETF in the consumer staples category for the year.
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Author is long PM.