Seeking Alpha
Long/short equity, value, research analyst, deep value
Profile| Send Message|
( followers)  

Summary

  • Lists of the Best and Worst ETFs and Mutual Funds in the Consumer Staples sector.
  • Distribution of all Consumer Staples ETFs and Mutual Funds across our Predictive Rating Scale.
  • Ratings are based on rigorous analysis of the profitability and valuation of each fund's holdings.
  • Our rating system is forward-looking and does not rely on past performance.

The Consumer Staples sector ranks first out of the ten sectors as detailed in my Sector Rankings for ETFs and Mutual Funds report. It gets my Very Attractive rating, which is based on aggregation of ratings of 10 ETFs and 15 mutual funds in the Consumer Staples sector as of July 17, 2014. Prior reports on the best & worst ETFs and mutual funds in every sector are here.

Figure 1 ranks from best to worst the nine Consumer Staples ETFs that meet our liquidity standards and Figure 2 shows the five best and worst-rated Consumer Staples mutual funds. Not all Consumer Staples sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 117). This variation creates drastically different investment implications and, therefore, ratings. The best ETFs and mutual funds allocate more value to Attractive-or-better-rated stocks than the worst ETFs and mutual funds, which allocate too much value to Neutral-or-worse-rated stocks.

To identify the best and avoid the worst ETFs and mutual funds within the Consumer Staples sector, investors need a predictive rating based on (1) the stocks ratings of the holdings, (2) the all-in expenses of each ETF and mutual fund, and (3) the fund's rank compared to all other ETFs and mutual funds. As a result, only the cheapest funds with the best holdings receive Attractive or better ratings. Investors need not rely on backward-looking ratings. My fund rating methodology is detailed here.

Investors seeking exposure to the Consumer Staples sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Get my ratings on all ETFs and mutual funds in this sector on my free mutual fund and ETF screener.

Figure 1: ETFs with the Best & Worst Ratings - Top 5

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Fidelity MSCI Consumer Staples Index (NYSEARCA:FSTA) is excluded from Figure 1 because its total net assets (NYSEARCA:TNA) are below $100 million and do not meet our liquidity minimums.

Figure 2: Mutual Funds with the Best & Worst Ratings - Top 5

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

ICON Funds: ICON Consumer Staples Fund (MUTF:ICLEX) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums.

State Street SPDR Consumer Staples Select Sector Fund (NYSEARCA:XLP) is my top-rated Consumer Staples ETF and Vanguard World Funds: Vanguard Consumer Staples Index Fund (MUTF:VCSAX) is my top-rated Consumer Staples mutual fund. Both earn my Very Attractive rating.

PowerShares S&P SmallCap Consumer Staples Portfolio (NASDAQ:PSCC) is my worst-rated Consumer Staples ETF and ICON Funds: ICON Consumer Staples Fund (MUTF:ICRAX) is my worst-rated Consumer Staples mutual fund. Both earn my Neutral rating.

Figure 3 shows that 32 out of the 203 stocks (over 26% of the market value) in Consumer Staples ETFs and mutual funds get an Attractive-or-better rating. However, 8 out of 10 Consumer Staples ETFs (over 97% of total net assets) and 13 out of 15 Consumer Staples mutual funds (over 90% of total net assets) get an Attractive-or-better rating.

Figure 3: Consumer Staples Sector Landscape For ETFs, Mutual Funds & Stocks

Sources: New Constructs, LLC and company filings

As detailed in "Cheap Funds Dupe Investors", the fund industry offers many cheap funds but very few funds with high-quality stocks, or with what I call good portfolio management.

The Clorox Company (NYSE:CLX) is one of my favorite stocks held by Consumer Staples ETFs and mutual funds and earns my Attractive rating. CLX earns one of the most consistent returns on invested capital (ROIC) of any company I cover. Since 2003, its ROIC has been between 10% and 12% every single year. CLX's ability to earns such a consistently high ROIC says great things about its efficient use of capital and its ability to maintain a competitive advantage in its industry. One might expect the shares of such a consistently profitable company to command a premium valuation, but this does not seem to be the case. At its current valuation of ~$89/share, CLX has a price to economic book value (PEBV) ratio of just 1.2. This ratio implies that CLX will grow after-tax profit (NOPAT) by no more than 20% from its current level for the remainder of its corporate life. CLX should comfortably surpass those low expectations.

Bunge Ltd. (NYSE:BG) is one of my least favorite stocks held by Consumer Staples ETFs and mutual funds and earns my Very Dangerous rating. BG also made it onto the Most Dangerous Stocks list for July. BG's NOPAT has declined by 1% over the past four years while the company currently earns a bottom quintile ROIC of 4%. Making matters worse, BG has generated negative economic earnings every year since 2008. Despite these struggles, the stock remains richly valued. To justify its current price of ~$84/share, BG would need to grow NOPAT by 10% compounded annually for the next 15 years. This seems awfully optimistic for a company that hasn't grown NOPAT for the past five years. Investors should avoid BG.

121 stocks of the 3000+ I cover are classified as Consumer Staples stocks.

Figures 4 and 5 show the rating landscape of all Consumer Staples ETFs and mutual funds.

My Sector Rankings for ETFs and Mutual Funds report ranks all sectors and highlights those that offer the best investments.

Figure 4: Separating the Best ETFs From the Worst ETFs

Sources: New Constructs, LLC and company filings

Figure 5: Separating the Best Mutual Funds From the Worst Mutual Funds

Sources: New Constructs, LLC and company filings

Kyle Guske II contributed to this report.

Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme. The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Source: Consumer Staples Sector