Market Overview

S&P Reiterates Bullish View On Staples ETFs (XLP, FCD, MOO)

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The "boring is beautiful" theme is back at work as ETFs tracking consumer staples are once again holding up well relative to the broader market. After bullish performances that saw staples, utilities and health care funds hold leadership roles in 2011, recent market volatility has forced investors to once again consider these stodgy sectors.

As measured by the Consumer Staples Select Sector SPDR (NYSE: XLP), the largest staples ETF, staples are easily outperforming the broader market. In the past week, XLP is down less than half a percent while the SPDR S&P 500 (NYSE: SPY) is off by 1.77%.

Given the group's defensive nature and the macroeconomic concerns plaguing global equity markets, S&P Capital IQ has reiterated an Overweight view on the staples sector. The research firm tracks almost 670 ETFs and said 15 of the 17 staples funds are among that group.

S&P rates XLP Overweight. XLP, which charges 0.18% and has over $5.5 billion in AUM, is home to 43 stocks. Top-10 holdings include Procter & Gamble (NYES: PG), Coca-Cola (NYSE: KO) and Philip Morris (NYSE: PM). That trio combines for about 36% of XLP's weight. The FocusShares Morningstar Consumer Defensive Index ETF (NYSE: FCD) also earns an Overweight rating. That fund's top-three holdings are the same as XLP's.

The $1.1 billion Vanguard Consumer Staples ETF (NYSE: VDC) also garnered an Overweight rating from S&P. VDC and FCD both have fees of 0.19%. The Vanguard offering is home to 108 stocks , including Procter & Gamble, Coca-Cola (NYSE: KO), Philip Morris, PepsiCo (NYSE: PEP), Kraft (NYSE: KFT) and Costco (Nasdaq: COST), all of which are found in the aforementioned rival ETFs.

"Within the Risk Considerations category, five of the six ETFs received a relatively favorable appraisal from the S&P Quality Rank metric, which indicates a relatively good earnings and dividend track record for the companies of which these ETFs owned shares. Among other risk-related analytics, four of these six ETFs had a favorable appraisal related to standard deviation, which measures price volatility of the ETF. Also, XLP, VDC and FCD each had a relatively favorable S&P Credit Rating appraisal," S&P said in the note.

The iShares Dow Jones U.S. Consumer Goods Sector Index Fund (NYSE: IYK) also earned an Overweight rating. While heavy on staples stocks, IYK also features some discretionary names, including Ford (NYSE: F) and Nike (NYSE: NKE), among its 123 holdings.

Investors looking for some international exposure might want to consider the iShares S&P Global Consumer Staples Index Fund (NYSE: KXI), which also earned an Overweight rating. The U.S. accounts for almost 53% of KXI's country weight, but the fund also offers exposure to the U.K., Switzerland, Japan and Australia, among other countries.

S&P's rankings included agribusiness funds among the staples group, so in the firm's view, the Marketweight-rated Market Vectors Agribusiness ETF (NYSE: MOO) with $5.7 billion in AUM is currently the largest staples ETF. The firm rated the IndexIQ Global Agribusiness Small-Cap ETF (NYSE: CROP) Overweight.

Posted-In: Analyst Color News Sector ETFs Short Ideas Commodities Intraday Update Markets Analyst Ratings


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