I Like Coffee, I Like Tea, I Like What This Staples ETF Does For Me
Perhaps it is not the best sign for the current level of risk appetite toward stocks, but consumer staples stocks and exchange-traded funds have been leaders since the start of the third quarter.
The Consumer Staples Select Sect. SPDR (ETF) (NYSE: XLP) and the Utilities SPDR (ETF) (NYSE: XLU) are fighting for top honors among the nine sector SPDRs this quarter. On Thursday, just nine ETFs hit all-time highs and a third were consumer staples funds. To this point in Friday's session, six ETFs have joined the all-time high club and two are staples funds.
PBJ In Focus
The PowerShares Dynamic Food & Beverage(ETF) (NYSE: PBJ) was one of the staples ETFs to hit a new high yesterday and is just pennies away from doing so again today. Among its staples ETF brethren, PBJ has been a leader this year, surging 10 percent, which is more than double the gain offered by the Vanguard Consumer Staples ETF (NYSE: VDC).
PBJ's out-performance of rival staples funds, namely the cap-weighted ETFs like VDC, is noteworthy because, as a dedicated food and beverage fund, PBJ holds no tobacco stocks. Tobacco stocks, such as Altria Group Inc (NYSE: MO) and Philip Morris International Inc. (NYSE: PM), have been key drivers of returns for traditional staples ETFs this year.
The methodology that serves as the backstop for PBJ is a significant departure from traditional staples funds. PBJ's 30 holdings are evaluated on factors including “price momentum, earnings momentum, quality, management action, and value,” according to PowerShares.
With that, PBJ actually is not a dedicated staples ETF. Rather, it is a staples-heavy ETF. The fund has an almost 11 percent allocation to consumer discretionary names spread across three stocks, including a nearly 5.4 percent weight to Starbucks Corporation (NASDAQ: SBUX).
PBJ has some other traits that are advantageous in the current environment. While large-caps across the growth, value and blend spectrums combine for about 40 percent of the ETF's weight, PBJ offsets some of that potential vulnerability to the strong U.S. dollar by devoting almost 35 percent of its portfolio to small-caps. Small-caps typically derive most of their revenue on a domestic basis, making them less sensitive to dollar fluctuations.
In addition to Starbucks, PBJ's other big-name holdings include:
- Monster Beverage Corporation (NASDAQ: MNST)
- Kraft Heinz Co (NASDAQ: KHC)
- Mondelez International Inc (NASDAQ: MDLZ)
- General Mills, Inc. (NYSE: GIS)
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