S&P Reiterates Favorable View of Staples ETFs (VDC, XLP, MOO)
Investors have relied on a familiar friend to cope with macroeconomic headwinds and choppy financial markets this year. That friend is the consumer staples sector, which S&P Capital IQ has once again reiterated a bullish view on.
"The S&P Capital IQ Equity Strategy continues to recommend overweighting the S&P 500 Consumer Staples sector, an approach viewed as offering a hedge to ongoing global economic concerns," the firm said in a research note. "The strategy team sees the sector having defensive characteristics, with a comparatively high dividend yield and attractive dividend growth potential."
In the research note, S&P Capital IQ reiterated Overweight ratings on six staples ETFs, including the Consumer Staples Select Sector SPDR (NYSE: XLP), the largest staples ETF holding $5.8 billion in assets under management. XLP, which charges 0.18 percent in fees per year, has gained almost 7.5 percent year-to-date.
XLP's primary rival, the Vanguard Consumer Staples ETF (NYSE: VDC), also garnered an Overweight rating from S&P. VDC, which charges 0.19 percent, has surged almost 9 percent this year.
XLP's top-five holdings in order are Coca-Cola (NYSE: KO), Procter & Gamble (NYSE: PG), Philip Morris (NYSE: PM), Wal-Mart (NYSE: WMT) and Kraft (NYSE: KFT). VDC's top-five holdings are Procter & Gamble, Coca-Cola, Philip Morris, Wal-Mart and PepsiCo (NYSE: PEP).
S&P considers the Market Vectors Agribusiness ETF (NYSE: MOO) to be a staples ETF as well and also has an Overweight rating on that fund. MOO, the largest agribusiness ETF, is up 4.3 percent this year.
"Within the Risk Considerations category, five of the six ETFs (all except MOO) received a relatively favorable appraisal from the S&P Quality Rank metric, which suggests a relatively good earnings and dividend track record for companies of which these ETFs owned shares," S&P said in the note. "Among other risk-related analytics, five of these ETFs (all except MOO) also had a favorable appraisal related to standard deviation, which measures price volatility of the ETF. Also, XLP had a relatively favorable S&P Credit Rating appraisal (related to holdings; based on publicly available credit rating information from a separate S&P unit)."
The $394.5 million iShares Dow Jones U.S. Consumer Goods Sector Index Fund (NYSE: IYK) is the iShares equivalent of VDC and XLP. IYK, which charges 0.47 percent per year, also garnered an Overweight rating from S&P. That ETF has risen 4.8 percent this year.
Two global funds – the iShares S&P Global Consumer Staples Index Fund (NYSE: KXI) and the International Consumer Staples Sector ETF (NYSE: IPS) – also received Overweight ratings from S&P. With $500 million in AUM, KXI is far larger than IPS and is cheaper with an expense ratio of 0.48 percent. IPS, which has just $19.57 million in AUM, charges 0.5 percent.
Nestle (PK: NSRGY), the world's largest food company, is the top holding in both ETFs, though it accounts for about 15.5 percent of the total weight in IPS. That is about double the stock's weight in KXI. KXI has outperformed IPS by nearly 200 basis points this year.
"Four of the six ETFs (all except MOO and IPS) received a relatively favorable holdings-based STARS appraisal from S&P Capital IQ equity analysts, while MOO was the only of these ETFs to receive a relatively favorable assessment of holdings from S&P Capital IQ's quantitative Fair Value system," according to the note. "From the S&P Technical input, which evaluates the ETF security rather than its holdings, all of the six ETFs had a relatively favorable assessment."
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