Staples ETFs: Doing Great, But They Could Be Much Better

It might not be the best sign for the level of risk investors are currently willing to accept at the sector level, but the consumer staples sector is on fire.

That much is confirmed by some important data points. For example, 30 exchange traded funds hit all-time highs on Wednesday and eight were staples funds. Add to that, since the start of the current quarter, the Consumer Staples Select SPDR is up 5.4 percent, easily the best showing among the nine sector SPDRs.

That is all great stuff for staples ETFs, but imagine how good things would be for these funds, particularly cap-weighted fare like XLP, if they were getting some help from the sector's biggest constituents.

As CNBC notes, former staples darlings such as Keurig Green Mountain GMCR, Whole Foods WFM and Dow component Wal-Mart WMT have been drains on the staples sector this year. 

Keurig Green Mountain and Whole Foods are not big drivers of XLP's performance. Those stocks combine for barely more than one percent of XLP's weight and Keurig Green Mountain has the smallest allocation of the 39 stocks found on XLP's roster. Wal-Mart is a different story. The world's largest retailer is 6.3 percent of XLP's weight, making the stock the ETF's fifth-largest holding.

Depending on one's point of view, it is either impressive that XLP has been durable without help from Wal-Mart or regrettable that the stock is not doing more to help the ETF. Then there is the case of Procter & Gamble PG. Down almost 15 percent this year, P&G hit a new 52-week low yesterday, but XLP hit an all-time high despite P&G being 11.3 percent of its weight.

Another way to look at XLP is this way: The ETF is up 6.1 percent this year despite P&G and Wal-Mart, two of its top five holdings, being of nine Dow stocks that are down at least 10 percent year-to-date.

Obviously, XLP is getting help from other corners. Forty-four S&P 500 members are up at least 10 percent over the past month and five – Clorox CLX, Mondelez MDLZ, Monster Beverage MNST, Reynolds American RAI and Walgreens Boots Alliance WBA – are XLP holdings. Walgreens and Mondelez and top 10 holdings in XLP, combining for almost 7.8 percent of the ETF's weight.

Speaking of tobacco stocks, Reynolds American, Philip Morris PM and Altria MO, the latter two of which are a combined 13 percent of XLP's weight, have posted an average return of almost nine percent over the past month.

XLP's message been it is quite alright without contributions from P&G and Wal-Mart, but investors can only think about what staples ETFs would look like if those stocks were helping the cause.