Consumer Staples ETFs Offer Defense And Yield

by: Tom Lydon

Consumer staples are a defensive sector in uncertain markets, and focused exchange traded funds can hedge the latest global volatility. The S&P Capital IQ Strategy Team not only sees focused ETFs as a protective stance, but also one with dividend yield and growth potential.

"There are 12 industry sub-industry indices in the consumer staples sector, with soft drinks and household products being the two largest. Through May 4, the strongest year-to-date price performance came from the agricultural products sub-industry, up 13%, while the worst was from food distributors, down 4.9%," Tom Graves, CFA for S&P Capital IQ, wrote in a recent note.

S&P Capital IQ views ETFs in the consumer staples sector as a useful tool to gain exposure. They are differentiated by size, geographic emphasis, and assessment of stocks owned in the portfolio.

The following ETFs are viewed as having positive implications by S&P Capital IQ, using S&P proprietary ETF reports and rankings:

  • Consumer Staples Select Sector SPDR (NYSEARCA:XLP)
  • Focus Morningstar Consumer Defensive Index ETF (NYSE:FCD)
  • IQ Global Agribusiness Small Cap ETF (NYSEARCA:CROP)
  • iShares Dow Jones US Consumer Goods Sector Index Fund (NYSEARCA:IYK)
  • iShares S&P Global Consumer Staples (NYSEARCA:KXI)
  • Vanguard Consumer Staples Index Fund (NYSEARCA:VDC)

Consumer staples and discretionary are poised to benefit from a spike in recent household consumer confidence. Companies within this sector are generally not exciting, however, they tend to be profitable and somewhat predictable.

The sector is sensitive to rising commodity prices, which can squeeze the profits out of food and household product companies, reports David Kathman, CFA for Morningstar. Furthermore, if consumers get hit with higher oil and gas prices, the effect can mean a tighter wallet, which also means less consumer spending.

Tisha Guerrero contributed to this article.

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