- The oldest available Consumer Staples ETF has nearly matched the return of an S&P 500 index fund over the last 19 years.
- Consumer Staples funds tend to have low correlation to broad U.S. Market funds, making a Consumer Staples ETF an excellent diversifier in a worldwide equity portfolio
- Morningstar has identified 16 ETFs as Consumer Defensive funds. Eight of these funds are 10 years old or older
The Consumer Staples Select Sector SPDR® Fund (XLP) is the oldest available consumer defensive ETF. The inception date for this fund is December 16, 1998. Since that time, this fund has nearly matched the returns of an S&P 500 index fund. While that is not very impressive, it is noteworthy that this fund has a very low correlation to the overall U.S. Markets and it has been less volatile than an S&P 500 index fund.
XLP vs S&P 500 index fund: January 1999 – October 2018
Source:Â https://www.portfoliovisualizer.com/
XLP vs SPY: December 22, 1998 – November 11, 2018
Source:Â https://www.koyfin.com/home
There are currently 16 ETFs in the Morningstar Consumer Defensive category. Eight of these 16 ETFs have been available for 10 years or longer. I have compared the performance of each of these funds head-to-head and ranked them by total returns. I did not consider expense ratios, trading volumes, assets under management, quality or suitability while comparing these funds. Prospective investors in this sector of funds should perform that due diligence prior to investing.
Source: 11-08-2018Â https://www.morningstar.com/
The four best performing Consumer Staples ETFs were RHS, PSL, VDC and FXG. In the next chart, you’ll see how these four ETFs performed head-to-head.
RHS vs PSL vs VDC vs FXG: June 2007 – October 2018
Source:Â https://www.portfoliovisualizer.com/
RHS vs PSL vs VDC vs FXG vs SPY: May 10, 2007 – November 11, 2018
Source:Â https://www.koyfin.com/home
Now, let’s look at the stated objectives and strategies of each of the top 4 performing Consumer Staples ETFs.
RHS – The Invesco S&P 500® Equal Weight Consumer Staples ETF (Fund) is based on the S&P 500® Equal Weight Consumer Staples Index (Index). The Fund will invest at least 90% of its total assets in common stocks that comprise the Index. The Index equally weights stocks in the consumer staples sector of the S&P 500® Index. The Fund and the Index are rebalanced quarterly. (Best long-term performance)
PSL – The Invesco DWA Consumer Staples Momentum ETF (Fund) is based on the Dorsey Wright® Consumer Staples Technical Leaders Index (DWA Consumer Staples Technical Leaders Index). The Fund will normally invest at least 90% of its total assets in the securities that comprise the Index. The Index is designed to identify companies that are showing relative strength (momentum) and is composed of at least 30 securities from the NASDAQ US Benchmark Index. Relative strength is the measurement of a security’s performance in a given universe over time as compared to the performance of all other securities in that universe. The Fund and the Index are rebalanced and reconstituted quarterly.
VDC – Vanguard Consumer Staples ETF – Seeks to track the performance of a benchmark index that measures the investment return of stocks in the consumer staples sector. Passively managed, using a full-replication strategy when possible and a sampling strategy if regulatory constraints dictate. Includes stocks of companies that provide direct-to-consumer products that, based on consumer spending habits, are considered nondiscretionary. (Most diversified, least volatile, best dividend)
FXG – The First Trust Consumer Staples AlphaDEX® Fund is an exchange-traded Fund. The investment objective of the Fund is to seek investment results that correspond generally to the price and yield, before fees and expenses, of an equity index called the StrataQuant® Consumer Staples Index. The StrataQuant® Consumer Staples Index is an “enhanced” index developed, maintained and sponsored by ICE Data Indices, LLC or its affiliates (“IDI”) which employs the AlphaDEX® stock selection methodology to select stocks from the Russell 1000® Index. IDI constructs the StrataQuant® Consumer Staples Index by ranking the stocks which are members of the Russell 1000® Index on growth factors including three, six and 12-month price appreciation, sales to price and one-year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets. Stocks which Russell has classified solely as growth or value, receive their score using the above growth or value factors respectively. Stocks which Russell allocates between both growth and value receive their best score between the growth and value factors. IDI then ranks those stocks contained in the consumer staples sector according to their score. The bottom 25% is eliminated and the top 75% is selected for the StrataQuant® Consumer Staples Index. The selected stocks are divided into quintiles based on their rankings and the top ranked quintiles receive a higher weight within the index. The stocks are equally-weighted within each quintile. The index is reconstituted and rebalanced quarterly. (Best single year performance, best P/B & P/E ratios)
The consumer staples sector has long been considered a defensive asset class in portfolio construction. These funds tend to go up in value much slower than the overall U.S. Markets and they tend to fall in value less during times of market volatility. Adding a Consumer Staples ETF to a worldwide equity portfolio can help reduce volatility during market corrections and potentially add Alpha if tactical rebalancing is employed. All 8 of the funds in the list above have performed well since their inception dates, but I believe a pick from the top 4 Consumer Staples ETFs is worth serious consideration.
Thank you for taking time to read this article. If you found it useful, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
Disclosure: We own shares of RHS and we intend to buy more shares in the future. I am not a professional investment advisor. Please perform your own due diligence or seek assistance from a Registered Investment Advisor prior to investing in any fund mentioned in this article.
Previous Deep Value ETF Accumulator article on the Consumer Staples sector: JULY 20, 2017 Best Long-Term Performance Consumer Defensive (Staples) ETFs