RHS: Let's Go Shopping!

| About: Guggenheim S&P (RHS)

Summary

RHS holds the top consumer staple companies in each sector and all with equally weighted allocations.

The fund has performed exceptionally well since its November 2006 inception.

At this point it may be a little overpriced but well worth purchasing in a market pullback.

The U.S. economy is a consumer driven economy. Although measures vary, it's generally accepted that up to 70% of economic growth is driven by consumer spending. However, the financial crisis of 2008 may have fundamentally changed the consumer spending dynamic. Since that great recession, there have been sharp declines in home equity values as well as wages and wage growth. This is of critical importance. Advanced economies, particularly those which depend on consumer spending are very dependent on consumer credit. Few people can afford to or even wish to purchase with cash. Most 'big ticket' items, like automobiles or large appliances are purchased on credit. Under normal circumstances, this is simply the way things work. Consumers are more likely to take into account total monthly payments on outstanding balances vs monthly income, than the overall cost of big ticket items. 'Can we afford it' has come to mean 'Can we afford the payments'. Clearly, this presents a problem for a consumer driven economy when household equity and wages are not what they used to be. Further, it does not appear that conditions will be returning to pre-2008 levels anytime soon.

According to the U.S. Federal Reserve, total consumer borrowing not including mortgage debt is approximately $3.57 trillion. This figure includes auto loans as well as student debt. Lastly, when it comes to automobile loans, there has been a surge in very long term auto loan durations, some up to 82 months! That's six to seven years! The entire point of the matter is this: Wage compensation may be enough to cover total monthly credit payments, but the gap between non-discretionary and discretionary income is shrinking. It's becoming more likely that consumers will have to pare back on discretionary spending.

Analysts roughly divide consumer spending into two groups: Consumer Discretionary and Consumer Staples. As one might expect, there are manufacturers which target each market. Since retail investors are most likely retail consumers as well, this might be a good time to channel whatever discretionary income is leftover into the non-cyclical Consumer Staples subsector. One particularly interesting way is through an ETF from the Guggenheim portfolio of ETFs: the Guggenheim S&P 500 Equal Weight Consumer Staples ETF (NYSE: RHS). The fund tracks the S&P 500 index of the very same name with a simple and rather successful methodology of having "... equal weights on the index constituents included in the S&P 500 that are classified in the GICS® consumer staples sector..." The fund rebalances according to the underlying index schedule of once in each quarter. Currently the fund's average weighting is 2.63% with the heaviest weighting being 2.99% of total and lightest weighting being 2.42% of total. Hence, the holdings are all within a band of ±0.285%; well within the equal weight ballpark.

Performance

Year to Date

1 Month

3 Months

6 Months

1 Year

3 Years

5 Years

Since Inception 11/1/2006

ETF Shares

5.14%

0.78%

10.34%

10.76%

13.01%

16.63%

16.79%

12.52%

NAV

5.01%

0.70%

10.39%

10.75%

13.00%

16.57%

16.79%

12.52%

Click to enlarge

Data from Guggenheim

The fund has performed well since its November 2006 inception. Its share value has tripled since inception and the fund has total distributions of $12.98484 since inception or 32.71% of its inception per share price. Based on the average trailing 12 months ETF share price of $115.23, the fund has had a TTM yield of approximately 1.734%; $1.996878. There are just 37 holdings totaling $740.336 million in net asset value with 6.1 million shares outstanding. The fund has good liquidity with a 3 month average daily volume of over 87,000 shares. The P/E is somewhat high at 24.71, well above the S&P 500 P/E of about 18. The fund trades at over 4 times book value. The gross expense ratio of 0.40% is below the industry average of 0.44% and the fund currently trades at a premium of $0.03 to its NAV. It's important to note that the fund trades at a premium to NAV about 50.82% of the time and at a discount to NAV 43.25% of the time. Hence the odds of purchasing at a discount to NAV are pretty good if one wishes to wait for a pullback.

Click to enlarge

Data from Guggenheim

Consumer Staples have always been considered a 'recession-proof' holding and indeed there are many ways to include consumer staple holdings in a portfolio. The choices are simple: individual holdings or by way of a fund. RHS is a pretty good venue. RHS has outperformed other similarly focused funds over both a 1 year and 3 year time frame as well as having the least number of holdings, a reasonably low turnover and a reasonably good yield.

Since the fund has so few holdings, the investor has the advantaging of knowing just what they are getting into from the universe of consumer staple companies. A brief overview is presented here but the potential investor is encouraged to 'check out' each holding at the Guggenheim website.

Food Product Manufacturers

Market Cap (in USD billions)

% Yield

Dividend

EPS

% Div/EPS

Total Debt to Equity

Institutional Interest

MEAD JOHNSON NUTRITION (NYSE: MJN)

$15.725

1.960%

$0.410

$3.270

12.530%

NA

0.00%

CONAGRA FOODS (NYSE:CAG)

$19.918

2.190%

$0.250

$1.640

15.244%

150.530%

77.48%

KELLOGG COMPANY (NYSE: K)

$27.316

2.580%

$0.500

$1.720

29.070%

364.610%

83.37%

GENERAL MILLS (NYSE: GIS)

$37.120

2.950%

$0.460

$2.460

18.700%

179.350%

70.50%

ARCHER DANIELS MIDLAND (NYSE: ADM)

$21.901

3.220%

$0.300

$2.990

10.033%

32.830%

77.33%

MONDELEZ (NASDAQ: MDLZ)

$66.988

1.580%

$0.170

$4.450

3.656%

54.970%

77.51%

KRAFT HEINZ (NASDAQ: KHC)

$94.846

2.950%

$0.570

-$0.320

NMF

38.100%

86.69%

MCCORMICK & CO (NYSE: MKC)

$12.095

1.810%

$0.430

$3.290

13.070%

84.580%

86.56%

HERSHEY (NYSE: HSY)

$14.433

2.490%

$0.580

$2.330

24.893%

242.540%

77.47%

JM SMUCKER (NYSE: SJM)

$15.367

2.090%

$0.670

$3.330

20.120%

72.140%

78.79%

CAMPBELL SOUP (NYSE: CPB)

$19.173

2.010%

$0.310

$2.270

13.656%

251.900%

43.92%

TYSON FOODS (NYSE: TSN)

$23.722

0.920%

$0.150

$3.360

4.167%

68.680%

95.73%

HORMEL FOODS (NYSE: HRL)

$20.911

1.470%

$0.140

$1.380

10.145%

6.010%

34.06%

Averages

$29.963

2.171%

$0.380

$2.475

14.607

128.530%

68.42%

Click to enlarge

Data From Reuters and Yahoo!

In the manufactured food products holdings, are found companies such as Mead Johnson Nutrition, Conagra Foods and Archer Daniels Midland. Each produce the food basics which wind up in those products found on supermarket shelves. The international company Mead Johnson specializes in infant and child nutrition under the Enfamil and Nutramigen brands, to name just two. Conagra also specializes in nutrition and distributes under the familiar wellness brand names such as Healthy Choice and Egg Beaters as well as many everyday products such as Gulden's Mustard and Wesson Cooking Oil. ADM is a global distributer of agricultural food additives as well as animal feeds and biofuel fuels. ADM produces the corn based ethanol gasoline additive as well as biodiesels. Although gasoline production is considered a component of the energy sector, it's fair to say that for most people, it's an absolute necessity, and it's only part of ADM's business.

Also held in the fund are the familiar store shelf brands, JM Smucker, Campbell Soup and Hershey. Although each of these market under those very same product brands, each have also acquired and market under other brands as well. For instance, Hershey's markets the York Peppermint and Reese's line of candies; Campbell's distributes Pepperidge Farms and V8 Juice and JM Smucker distributes under Pillsbury, Crisco and also partners with Dunkin Donuts (NASDAQ: DNKN) producing many of Dunkin's store shelve packaged products.

The fund's food product manufacturers list a mere 13 companies, however, these parent brand names are found on nearly every packaged item on supermarket shelves via their company or acquired brands.

Beverage Manufacturers

Market Cap

Yield

Dividend

EPS

% Div/EPS

Total Debt to Equity

Institutional Interest

Constellation Brands (NYSE: STZ)

$31.242

1.020%

$0.400

$4.640

8.621%

123.200%

87.13%

COCA-COLA ENTERPRISES (NYSE: CCE)

$12.213

2.240%

$0.300

$2.550

11.764%

403.450%

84.86%

MOLSON COORS BREWING (NYSE: TAP)

$20.740

1.690%

$0.410

$1.910

21.466%

41.710%

73.91%

PEPSICO (NYSE: PEP)

$151.638

2.710%

$0.700

$3.680

19.022%

279.160%

70.75%

COCA COLA (NYSE: KO)

$199.555

3.040%

$0.350

$1.670

20.958%

173.000%

65.44%

BROWN-FORMAN (NYSE:BF.B)

$19.751

1.420%

$0.340

$3.330

10.210%

122.650%

50.47%

DR PEPPER SNAPPLE (NYSE: DPS)

$16.553

2.400%

$0.530

$3.970

13.350%

154.920%

92.70%

MONSTER BEVERAGE (NASDAQ: MNST)

$26.071

0.000%

$0.000

$2.800

0.000%

0.000%

65.97%

Averages

$59.720

1.815%

$0.379

$3.069

13.174%

162.261%

73.90%

Click to enlarge

Data From Reuters and Yahoo!

A bit of corporate history is worth noting here. Coca-Cola Enterprises was originally the Coca-Cola Bottling Company, acquired by Coca-Cola in 1980. Coke then went about acquiring several other bottlers in various regions adding to CCE. In 1986 Coca-Cola Enterprises was spun off as a separate company which now bottles and distributes Coca-Cola products worldwide. The strategy was brilliant as it created a global market distribution network for Coca-Cola products, which is instrumental for Coke's dominance in the non-alcoholic beverage product market. CCE is still growing, having merged with other Coke bottlers forming Coca-Cola European Partners (Reuters).

Coke's chief rival for many decades, Pepsico has since diversified its portfolio to include popular brand names such as Lays, Tropicana, Quaker Oats and many other brands found on store shelves around the world.

Over the past few years, beer has taken on the 'ambience' and complexity of fine wine to the delight of beer drinkers all over the world. The market growth has been fast and furious, especially with the recent wave of consolidation by the global competition to reach untapped markets. To that end, the fund holds Constellation Brands, a global distributer with 12 wine, 7 beer, 5 spirit and 12 specialty spirit labels. Importantly, the fund also holds Molson Coors Brewing a global, mainly beer distributer with well over 100 labels of beer and ciders as well as 50 partnered labels.

Retail Food and Consumer Staples

Market Cap

Yield

Dividend

EPS

% Div/EPS

Total Debt to Equity

Institutional Interest

WAL-MART STORES (NYSE: WMT)

$217.148

2.900%

$0.500

$4.570

10.941%

62.120%

30.52%

SYSCO (NYSE: SYY)

$26.435

2.650%

$0.310

$1.300

23.846%

110.520%

82.54%

CVS HEALTH (NYSE: CVS)

$111.676

1.660%

$0.430

$4.650

9.247%

73.840%

85.78%

COSTCO (NASDAQ: COST)

$67.247

1.180%

$0.450

$5.220

8.621%

45.230%

73.96%

WALGREEN BOOTS ALLIANCE (NASDAQ: WBA)

$87.975

1.770%

$0.360

$3.070

11.726%

47.540%

61.38%

KROGER (NYSE: KR)

$35.525

1.140%

$0.100

$2.060

4.854%

177.100%

81.20%

WHOLE FOODS MARKET (NASDAQ: WFM)

$10.053

1.740%

$0.140

$1.490

9.396%

32.340%

90.24%

Averages

$79.437

1.863%

$0.327

$3.194

11.233%

78.384%

72.23%

Click to enlarge

Data From Reuters and Yahoo!

Retail food stores are a 'must have' in a consumer staples fund. RHS takes a unique approach and by doing so seems to recognize that there is a subsector of companies which cannot be differentiated into separate food and consumer product retailers. Most notable are Costco and Wal-Mart. These are examples of 'big-box' super stores, where almost all consumer products may be had in one stop and then, often in bulk; they save consumers time and money. Further, many Costco locations sell gasoline, have a pharmacy, an optical department, tire center and food court. Similarly, Wal-Mart locations often have pharmacies, in store grocery markets and bakeries. Lastly, superstores also market under store brands. Costco markets under the Kirkland brand and Walmart under 12 different brands including Equate and Great Value. Also included in this section of the fund is Sysco, essentially a trucking company but one which specializes in food products, from warehouse-to-customer trucking service. Their delivery market includes supermarkets, superstores, health care facilities, hotels, lodgings and schools.

Household Products Manufacturers

Market Cap

Yield

Dividend

EPS

% Div/EPS

Total Debt to Equity

Institutional Interest

COLGATE-PALMOLIVE (NYSE: CL)

$63.562

2.190%

$0.390

$1.510

25.828%

NA

76.27%

CHURCH & DWIGHT (NYSE:CHD)

$12.045

1.510%

$0.350

$3.070

11.400%

51.900%

85.76%

KIMBERLY CLARK (NYSE: KMB)

$49.221

2.700%

$0.920

$2.760

33.333%

NA

69.93%

PROCTER & GAMBLE (NYSE: PG)

$222.586

3.250%

$0.670

$3.030

22.112%

51.160%

61.45%

CLOROX CO (NYSE: CLX)

$16.363

2.440%

$0.770

$4.970

15.493%

NMF

73.43%

Averages

$72.755

2.418%

$0.620

$3.068

21.633%

51.530%

Data From Reuters and Yahoo!73.37%

Click to enlarge

Data From Reuters and Yahoo!

Consumer staples must also include those necessary household goods such as soaps, detergents and cleaning products. Global leaders such as Colgate-Palmolive and Clorox are among the holdings. Every holding in this section is a major, globally recognized brand name.

Tobacco

Market Cap

Yield

Dividend

EPS

% Div/EPS

Total Debt to Equity

Institutional Interest

PHILIP MORRIS INT'L (NYSE: PM)

$155.295

4.080%

$1.020

$4.420

23.077%

NA

71.61%

ALTRIA GROUP (NYSE: MO)

$120.701

3.660%

$0.560

$2.670

20.974%

448.580%

61.79%

REYNOLDS AMERICAN (NYSE: RAI)

$69.609

3.450%

$0.420

$2.710

15.598%

95.590%

48.29%

Averages

$115.202

3.730%

$0.667

$3.267

19.883%

272.085%

60.56%

Click to enlarge

Data From Reuters and Yahoo!

There is a long, ongoing battle over the use of tobacco products. Whatever might be said, hundreds of millions of consumers use tobacco in one form or another, around the world. In many nations, tobacco is banned from media advertising, heavily regulated, heavily taxed and the packaging itself is strictly controlled in many countries. Still, tobacco product manufactures continue to profit and are still publicly held companies. From a neutral investing point of view, they are part of the consumer staple sector and the fund contains the three top tobacco product manufactures. It should be noted that the three have an average yield of 3.73% and institutional interest averages over 60%.

Personal Care Product Manufacturers

Market Cap

Yield

Dividend

EPS

% Div/EPS

Total Debt to Equity

Institutional Interest

ESTEE LAUDER COS (NYSE: EL)

$34.996

1.260%

$0.300

$3.110

9.646%

54.990%

96.46%

Click to enlarge

Data From Reuters and Yahoo!

There is only one company categorized as a 'personal care' product manufacturer: Estée Lauder. This holding deserves a word about its founder, Estée Lauder. Born in Queens, NY, and a daughter of European immigrants, she partnered with her uncle and professional chemist, John Schotz, in 1946 to create and market from home just a few skin care products. From that humble but entrepreneurial beginning, she guided, developed and finally incorporated the brand name in 1976. Today, the company is globally iconic, reaching markets in at least 150 countries under multiple brands as well as being a licensed distributer for Hilfiger, Donna Karan, Coach and others. The company researches, develops and markets a full line of personal care products, including re-nutriv skincare products, makeup, fragrances and accessories.

Estée Lauder was the recipient of numerous business awards over her career. The story of her success was acknowledged by Time Magazine and she was awarded the Presidential Medal of Freedom in 2004. Estée Lauder was a self-made woman, during a time when it was still a man's world; clearly, decades ahead of her time.

Click to enlarge

One import observation should be clear at this point: Consumer Staple companies market under a bevy of brand names, each with its own unique packaging and logo. So although the fund (or others like it) may have only a few holdings, it covers many hundreds of products. Try an experiment: the next time you go grocery shopping, take some time to read a few labels of the competing brands to see just who the parent companies of those brands are.

In our new normal economy, it may take many years for 'spending power' to catch up to what it was before the 2008 credit crises. It seems that the 'old economy' of the late '90s and early '00s, as advanced as it might have appeared to us, was merely one step into an evolving 21 st century economy. The world has seen these transitions before. Keep in mind it has been just over one century from the first experimental airplanes, to the superjumbo jet; the crank-up telephone to mobile communications or the model T automobile to the Tesla (NASDAQ:TSLA). During these transitions national economies cycle above and below a median rate of growth. A wise investor will construct a portfolio, carefully balanced with a good core 'fulcrum ETF' holding and additional ETFs of varying risks extending out, balancing the lever over the fulcrum. In the case of conservative, lower risk funds, capable of performing well in varying economic environments, the Guggenheim Equally Weighted Consumer Staple ETF, just might be the right package.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: CFDs, spread-betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.