A faltering global economy, rising rate concerns in the U.S. and a shaky stock market have resulted in investors fretting about their returns since the start of 2015. Yields on bonds saw an upturn in February on better-than-expected job data, or more specifically, on improving wage growth data. In such a situation, the high dividend-paying sectors like consumer staples should have been hit given their sensitivity to rising interest rates.
But to the utter surprise of everyone, almost all consumer staples' ETFs have flourished so far this year, overruling rising rate concerns. Given their low volatile nature, which has given them a safe-haven status, and the growing wealth of American consumers, this investment corner has delivered an all-star performance.
Investors should note that the consumer staples firms remain more or less impervious to economic cycles and play a defensive role when the macro economy is under pressure. While the sector usually isn't considered a growth segment, the demand for U.S.-branded food, beverages, household and hygiene-oriented products, is on the rise in developing countries (read: 4 Buy Ranked Emerging Markets ETFs in Focus).
These emerging markets also offer ample growth opportunities for this segment. The greenback halted its northward journey in February and hovered in a tight range, not hurting staples companies much while repatriating their foreign income into the U.S. dollar.
Plus, in January, consumer confidence touched an 11-year high data of 98.1. Though the indicator slipped to 95.4 in February to reflect a frigid winter and the resultant decline in consumer spending, the fall represented the first monthly decline in seven months. This corroborates to an overall sound consumer sentiment.
If this was not enough, the Fed's reassurance that it is not in any hurry to hike rates due to muted inflationary backdrop; this rate-sensitive consumer staples sector took a breather and started hitting highs. While several consumer staples ETFs have performed remarkably well, the following three emerged as true winners and surged to new 52-week highs last week (see: all Consumer Staples ETFs here).
Consumer Staples AlphaDEX Fund (NYSEARCA:FXG)
This fund provides exposure to the consumer staples segment of the broad U.S. market by tracking the StrataQuant Consumer Staples Index. It follows an AlphaDEX methodology and ranks stocks in the space by various growth and value factors, eliminating the bottom ranked 25% of the stocks (read: Pump Profits with These Alpha-Generating ETFs).
This approach results in a basket of 39 stocks that are well spread out across various components. Each security holds less than 5.94% of assets. About 40% of the portfolio is allocated to food products in terms of sectors, followed by food & staples retailing (28.82%) and beverages (17.14%).
FXG is one of the popular and liquid ETFs in the consumer staples space with $2.66 billion in AUM and average daily volume of 600,000 shares. It hit a 52-week high of $45.40 per share on February 27, 2015 and is up about 6.3% so far this year. It charges a slightly higher fee of 70 bps per year. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Guggenheim S&P 500 Equal Weight Consumer Staples (NYSE:RHS)
This fund surged to a new one-year high of $109.88 on February 27. It seeks investment results corresponding to the S&P 500 Equal Weight Index Consumer Staples. This is an equal-weighted fund and constitutes of 40 stocks. No stock accounts for more than 3.22% of the basket. Food products take around 35% of the fund followed by beverages (22%) and food and staples retailing (19%).
The fund's expense ratio is 0.40%. RHS has about $278 million in AUM and trades in a paltry average volume of about 30,000 shares a day. The fund is up about 5% in the year-to-date frame (as of February 27, 2015).
iShares Global Consumer Staples ETF (NYSEARCA:KXI)
The ascent of this fund to the one-year high level indicates that the staples stocks are making waves in foreign shores too. A low yield environment in most international markets and the sector's defensive nature made it a star abroad.
The fund invests half of its assets in the U.S. while Europe gets the second spot with about 35% focus followed by the Asia-Pacific (8%). The 98-stock fund has an asset base of $664 million, though it has a slight company-specific concentration risk with top two holdings occupying about 15% of the basket (read: After Weak PG Earnings, How Are Consumer ETFs Looking?).
The fund charges 47 bps in fees. On February 27, the fund hit a 52-week high of $94.63. The fund is up about 5.2% so far this year.
The above-mentioned products could be worthwhile in the current shaky market as these have clearly outperformed the year-to-date return of 2.5% delivered by the broader U.S. equity market ETF SPDR S&P 500 ETF (NYSEARCA:SPY). This suggests strong growth as well as safety in the staples space for as long as the present economic backdrop persists.