S&P Still Likes Staples ETFs
After a banner 2011 for consumer staples stocks and the corresponding ETFs, risk on has come back into style in 2012 and that has not been the best of news for the stodgy staples group. Still, it should be noted that the bigger names among staples ETFs are at least up on the year and are still within earshot of their 52-week highs.
In a new research note, S&P Capital IQ extols bullish views on select staples ETFs, placing Overweight ratings on four funds. That quartet is the Consumer Staples Select SPDR (NYSE: XLP), the Vanguard Consumer Staples ETF (NYSE: VDC), the iShares Dow Jones US Consumer Goods ETF (NYSE: IYK) and the iShares S&P Global Consumer Staples ETF (NYSE: KXI).
As S&P notes, the staples group is a great way to dodge high beta names. "The relatively low historical volatility of Consumer Staples stocks is reflected in a 0.58 beta for the sector's S&P 500 shares, the lowest of any sector in the index," according to the note.
There are 19 staples ETFs in S&P coverage universe of 650 ETFs, but the four mentioned above are the only ones to receive the Overweight rating, S&P's highest.
Among XLP, VDC and IYK, investors will find ETFs that are heavy on the following familiar names: Procter & Gamble (NYSE: PG), Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), Kraft (NYSE: KFT), Wal-Mart (NYSE: WMT) and CVS Caremark (NYSE: CVS), to name a few.
KXI isn't vastly different as over 52% of that fund's weight is allocated to U.S.-based companies though the ETF does have one of the largest allocations to Nestle (PK: NSRGY), the world's biggest food company, of any ETF on the market.
"Each of the four top-ranked Consumer Staples ETFs received an Overweight ranking in the Risk Considerations category. Each of these four ETFs had a positive assessment from S&P Quality Rank metric, which suggests a relatively good earnings and dividend track record for companies of which these ETFs owned shares. Among other risk-related analytics, all four of these give ETFs also had a favorable appraisal related to standard deviation, which measures price volatility of the ETF. Also, XLP and VDC had a relatively favorable S&P Credit Rating appraisal," S&P said in its note.
With State Street's (NYSE: STT) recent announcement that it will lower fees for its Select Sector SPDRs suite, XLP now bests VDC as the cheapest staples ETF with an expense ratio of just 0.18%, but in S&P's coverage universe, XLP is not the largest staples ETF. That honor goes to the Marketweight-rated Market Vectors Agribusiness ETF (NYSE: MOO), which had $6.2 billion in AUM as of February 7 compared to $5 billion for XLP, according to S&P.
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