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VDC: Headwinds For Consumer Staples In The Post-Pandemic Fallout


  • VDC is an exchange-traded fund that tracks a basket of consumer staples stocks.
  • The group has had a mixed 2020, with some companies benefiting from consumer spending favoring household essentials, while others saw their business disrupted by the coronavirus pandemic.
  • Following an impressive rally off the March lows, we take a cautious outlook, considering global macro risks that are set to pressure growth amid currently pricey valuation.
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The Vanguard Consumer Staples Index ETF (NYSEARCA:VDC) offers investors targeted exposure to stocks in one of the core market sectors through a low-cost diversified exchange-traded fund. Given the ongoing coronavirus pandemic, consumer staples have represented a defensive position for many investors, considering many companies benefited from consumers stocking up on items during worldwide lockdown measures. At the same time, other companies in the group with broader exposure beyond household essentials have had their business disrupted with parts of the economy shut down. We take a more cautious outlook on the fund and highlight some weaker growth trends and valuation concerns among some of the top holdings that now represent headwinds from current levels.

(Source: finviz.com)

VDC Background

The VDC ETF with $5.8 billion in total assets and 92 underlying holdings tracks the "MSCI US IMI Consumer Staples Index". The index and fund are cap-weighted and include U.S. large, mid, and small-cap consumer staples companies that represent a passive approach to capture sector trends.

(Source: Vanguard)

Consumer staples typically refer to goods that are considered essential or at least a recurring part of consumer spending budgets. It's understood that these companies are less exposed to the economic cycle as consumers in a recession would still require food and beverages, household and personal items, along with resilient demand for alcohol and tobacco. Companies like Procter & Gamble (PG) and PepsiCo Inc. (PEP), among the top 3 holdings, are representative of the classic staples stock.

The classifications have some subjectivity with some companies featuring different products and business models that may fall into the discretionary category. An example here is Walmart Inc. (WMT) and Costco Wholesale Corp. (COST), which are the 4th and 5th largest holdings, with combined a 14% weighting in the fund. While these retailers specialize in everyday consumer items, some products

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This article was written by

Dan Victor, CFA profile picture

15 years of professional experience in capital markets and investment management at major financial institutions. 

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Analyst’s 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.

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