Market Overview

Going Shopping With This Consumer Staples ETF

Going Shopping With This Consumer Staples ETF

The consumer staples sector, the seventh-largest sector weight in the S&P 500, has been a solid performer this year. As of April 30, the S&P 500 Consumer Staples Index was up 14.3 percent year-to-date.

What Happened

With May here, investors may want to consider the consumer staples sector and the related exchange traded funds given the sector's tendency to perform well in the fifth month of the year. Some analysts are hip to that theme.

In a note out Wednesday, CFRA Research highlighted the Vanguard Consumer Staples ETF (NYSE: VDC) as its focus ETF for the month of May. VDC is up 12.3 percent year-to-date, however, the consumer staples sector could be poised to outperform the broader market in the May through October time frame.

Why It's Important

“According to CFRA Investment Strategist Sam Stovall, the average advance of 1.4 percent for the S&P 500 from May-October period was the weakest of all 12 rolling six-month periods since 1990,” said CFRA Director of ETF & Mutual Fund Research Todd Rosenbluth in the note.

“However, Stovall points out that the defensive Consumer Staples sector has risen on average 4.4% and outperformed the broader market 62 percent of the time, suggesting it would be better to rotate than retreat. Indeed, when the going gets tough, investors historically flocked to companies with consistent earnings and dividend records in this sector.”

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VDC holds 92 stocks with a median market capitalization of $107.6 billion. Like rival cap-weighted consumer staples ETFs, the Vanguard fund is heavily allocated to Dow components Procter & Gamble (NYSE: PG), Coca-Cola Co. (NYSE: KO) and Walmart Inc. (NYSE: WMT). CFRA equity analyst Arun Sundaram has a Buy rating on Procter & Gamble.

“He thinks the Beauty segment (19 percent of net sales), which has been the segment leader in terms of organic sales growth, has plenty of runway ahead in developing and emerging markets,” said Rosenbluth. “Sundaram forecasts PG’s pending organizational change will make PG more agile and focused, giving it additional momentum. PG also has an above-average S&P Global Market Intelligence Quality Ranking of A.”

What's Next

CFRA also has a Buy rating on Coca-Cola and a Strong Buy rating on PepsiCo Inc. (NASDAQ: PEP). As CFRA notes, investors have added $320 million to VDC this year. The research firm has an Overweight rating on the ETF.

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