The S&P 500 Consumer Staples (Sector) index has gained 20.5% year to date. The sector is known for its non-cyclical nature and acts as a safe haven during erratic market conditions. Moreover, like utility, consumer staples is considered a stable sector for the long term as its players are likely to offer decent returns (read: Top-Ranked ETFs That Crushed the Market in a Month).
What’s Driving the Upside?
Trade war tensions between the United States and China have been increasing the appeal of consumer staples stocks. This is because such stocks generally outperform during periods of low growth and high uncertainty.
Per a Wall Street Journal report, China is refusing to mention a figure for the farm purchases annually on the agreement. President Trump had earlier announced that China had agreed to purchase up to $50 billion of soybeans, pork and other farm products from the United States annually. Moreover, going by a CNBC article, United States is demanding a stricter approach by China to regulate intellectual property protections and control forced technology transfers. Moreover, Trump’s latest warnings to raise tariffs if both sides fail to reach a deal have made investors jittery. However, per the latest updates, the United States and Beijing are close to striking a trade deal. In fact, China has recently removed its 4-year-old ban on U.S. poultry shipments (read: Phase 1 Trade Deal or Not: ETFs to Ride the Trend).
Moreover, the U.S. central bank has cut rates in October for the third time in 2019. This is likely to lower bond yields and favor consumer staples ETFs. With falling rates, a rate-sensitive sector like Consumer Staples has every reason to outperform. These sectors are high-yielding in nature and should thus perform better in a low-rate environment.
Also, the sector has witnessed a decent earnings season. About 87.5% of the consumer staples market cap in the S&P 500 has so far reported Q3 earnings, registering 1% earnings growth on 5.7% higher revenues. Beat ratios have been decent with 78.6% of the companies surpassing earnings estimates and 50% beating on the top line.
Consumer Staples ETFs Up 20% or More
The trends have been benefiting consumer staples ETFs. Here we highlight certain ETFs that have gained more than 20% year to date (see: all Consumer Staples ETFs here):
Invesco S&P 500 Equal Weight Consumer Staples ETF RHS — up 23.1% year to date
The fund is based on the S&P 500 Equal Weight Consumer Staples Index. The index equally weights stocks in the consumer staples sector of the S&P 500 Index. The fund holds 33 stocks in its basket and has 0.40% in expense ratio. It has accumulated $507.6 million in its asset base.
The Consumer Staples Select Sector SPDR Fund XLP — up 23%
The fund tracks the Consumer Staples Select Sector Index. It provides exposure to companies from the food and staples retailing, beverage, food product, tobacco, household product and personal product industries in the United States. The fund holds 33 stocks in its basket and has 0.13% in expense ratio. It has accumulated $13.32 billion in its asset base (read: Solid PG Earnings to Further Boost Staples ETFs).
Fidelity MSCI Consumer Staples Index ETF FSTA — up 22.5%
The fund invests at least 80% of assets in securities included in the MSCI USA IMI Consumer Staples Index. It holds 89 stocks in its basket and has 0.08% in expense ratio. It has accumulated $556.9 million in its asset base.
iShares U.S. Consumer Goods ETF IYK — up 21.7%
This ETF tracks the Dow Jones U.S. Consumer Goods Index, giving investors exposure to the broad Consumer Staples space. It has AUM of $484 million and charges a fee of 42 basis points a year. The fund is composed of 105 holdings (read: Staple ETFs Shine on Philip Morris’ Q3 Earnings Release).
iShares Evolved U.S. Consumer Staples ETF IECS — up 21.6%
The actively managed fund provides access to U.S. companies with consumer staples exposure. It holds 123 stocks in its basket and has 0.18% in expense ratio. It has accumulated $8.3 million in its asset base (read: Consumer Staples ETFs Beating Discretionary ETFs: Why?).
Vanguard Consumer Staples ETF VDC — up 21.5%
The fund seeks to track the performance of the MSCI US Investable Market Consumer Staples 25/50 Index. It holds 89 stocks in its basket and has 0.10% in expense ratio. It has accumulated $5.34 billion in its asset base.
John Hancock Multifactor Consumer Staples ETF JHMS — up 20.2%
This product targets the consumer staples sector by tracking the John Hancock Dimensional Consumer Staples Index. Holding 51 stocks in its basket, the fund has accumulated $30.7 million in AUM. It charges 0.40% in annual fees.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.