Consumer Staples ETFs For Exposure to Drug Retailers

ETF Trends

Drug retailers are a new sub-industry poised to benefit from the Affordable Care Act as 30 million more Americans are projected to gain health insurance coverage beginning January 2014. Consumer staples exchange traded funds are anticipated to gain more momentum as the drug retailing landscape gathers steam.

“In our view, drugstores are better positioned to compete with non-traditional formats in 2013 due to further development of their loyalty card programs. We believe loyalty card programs are helping drugstores drive increased store visits and helping grow basket sizes through incentive programs and an increased ability to target market. An additional benefit from loyalty programs includes the more efficient use of marketing and promotional budgets,” S&P Capital wrote in a recent note. [Defensive Consumer Staples ETFs for Yield]

The Consumer Staples Select Sector SPDR (XLP) and the Vanguard Consumer Discretionary (VDC) are both rated “Overweight” by S&P Capital and are positioned to benefit from increased traffic at drug discount retail stores. As the baby boomer generation continues to age, or 10,000 people turn 65 every day, the demand for prescription drugs is growing. Both ETFs hold CVS Caremark at 4.5% and 4.2% respectively. [Retail ETFs Hold Steady]

National chains are set to gain steam from the baby boomer projections, and have set themselves apart from grocery and warehouse clubs. Retail drugstores feature a faster in and out experience, are built closer to housing tracts and have smaller parking lots, with the plus of a pharmacist on-hand for one-on-one guidance, notes S&P Capital. [Investors Clamor for Generic Drug ETF]

Also driving the trend is the increased generic drug sales, and benefits from the Affordable Care Act which will be put into action beginning January 2014. Furthermore, generic drug benefits are set to peak in the middle of 2013, putting more pressure on drug reimbursements. [ETF Chart of the Day: Healthcare]

The consumer staples and healthcare sectors are solid defensive strategies to implement within a portfolio. Neither sector is sensitive to interest rate risk and both are defensive plays in an uncertain market.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

View Comments (1)