Best Long-Term Performance Consumer Defensive (Staples) ETFs

Have you considered adding Consumer Defensive (Staples) stocks to your investment portfolio? If so, you need to know that not all the ETFs that track this sector are built the same. In this article, I will show you how I decided on the Consumer Defensive ETF that I invest in.

First, let’s define exactly what are consumer defensive (staples) stocks. Investopia describes them this way: Consumer staples are essential products, such as food, beverages, tobacco and household items. Consumer staples are goods that people are unable or unwilling to cut out of their budgets regardless of their financial situation. Consumer staples are considered to be non-cyclical, meaning that they are always in demand, no matter how well the economy is performing. People tend to demand consumer staples at a relatively constant level, regardless of their price.

Now, let’s look at the performance of consumer staples over the last 18 years. In the following chart I have compared the oldest consumer staple ETF, Consumer Staples Select Sector SPDR® Fund (XLP) and the S&P 500.

The XLP ETF has only outperformed the S&P 500 over the last 18 years by 0.56 CAGR (compounded annual growth rate). But, XLP’s correlation coefficient to the S&P 500 is very low at just 0.54. For this reason alone, I believe this is an investable asset class.

Next, let’s take a look at the 8 consumer staple ETFs that are 10 years old or older.

I have taken the time to compare each and every one of the ETFs head-to-head with each other on PortfolioVisualizer.com. Since I can only compare 3 ETFs at time with this excellent tool, I have only shown the backtest that compare the 3 top results.

The top 3 are:

  1. RHS – Guggenheim S&P 500® Equal Weight Consumer Staples ETF
  2. VDC – Vanguard Consumer Staples ETF
  3. FXG – First Trust Consumer Staples AlphaDEX® Fund

Here’s the chart comparing the top 3 consumer staples ETFs:

As you can see, in the shorter time-frame of 10 years, the consumer staples sector has outperformed the S&P 500 significantly.  RHS has outperformed the next best consumer staple ETF by 1.1% CAGR and the S&P 500 by 4.31%.

Because RHS has had some serious outperformance and the consumer defensive sector has a very low correlation to the S&P 500, I have decided that I will invest in RHS. Before I throw caution to the wind, I’ll look at the ETF Deathwatch List  just to make sure RHS isn’t in danger of folding. Good news! RHS Looks safe from that standpoint. I also want to see the prospectus to see what I’m getting into. Here are some key facts about RHS from the prospectus:

  • Expense ratio – 0.40%
  • Weighting Structure – Equal Weight
  • Turnover Ratio – 17%
  • Rebalance Schedule – Quarterly
  • Average Volume – 27k Shares/Day

Now that I have considered long-term returns, S&P 500 correlation, the ETF Deathwatch and the prospectus, I am now determined that RHS will be part of our investment portfolio. If you are considering investing in the consumer staples sector, I highly recommend RHS.

Thanks for taking time to read this article. Please feel free to share it liberally. If you have any questions about investing in ETFs, please ask it in the comment block below.

Respectfully yours, The Deep Value ETF Accumulator, aka Micah McDonald

 

 

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