XLP: The Sector Is Highly Concentrated, Growth Slowing, And Overvalued
Summary
- Both XLP and VDC consumer staples ETFs are overvalued, with top-heavy holdings and limited upside due to high valuations of major constituents.
- Slowing U.S. population and GDP growth will cap long-term revenue growth for the consumer staples sector, reducing its historical outperformance.
- High concentration risk in these funds exposes investors to companies trading significantly above their historical valuation ratios.
- I recommend a sell rating on XLP and VDC, suggesting investors seek undervalued consumer staples stocks with greater international exposure or growth potential.
Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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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