Consumer staples stocks are notoriously slow-moving, but the sector’s reputation for dependable dividend growth and decent yields has made it a favored destination for scores of income investors.
Those attributes have also compelled investors to pour billions of dollars into exchange traded funds tracking the consumer staples sector. But in a strong bull market, such as the one investors have been treated to in 2013, lower beta sectors, including staples, have a propensity to lag the broader market. For example, the two largest staples ETFs are up an average of 23% while the S&P 500 is higher by 27.7%.
Investors willing to take on some added risk with the staples sector were rewarded this year. That is if they embraced the PowerShares S&P SmallCap Consumer Staples Portfolio (PSCC). PSCC is intended to be the small-cap answer to the Consumer Staples Select Sector SPDR (XLP) , a fund PSCC has easily outpaced this year. [Market may not Like What Staples ETFs are Saying]
Not only has PSCC outpaced its large-cap equivalents, but the fund has also slightly outperformed the iShares Russell 2000 ETF (IWM) on its way to a 38.2% year-to-date gain, enough to make PSCC this year’s best consumer staples ETF.
As was highlighted with this year’s best utilities ETF, there were also trade-offs to be made for those that opted for PSCC over a traditional staples fund. For example, as was seen in the utilities example, investors made a yield sacrifice with PSCC, which is not surprising because this is a small-cap ETF. PSCC’s 30-day SEC yield is 0.49% compared to 2.42% on XLP. [Meet 2013's Top Utility ETF]
Not only are staples the second-priciest S&P 500 sector behind discretionary at the moment, but staples are also trading above their five- and 10-year averages. With PSCC being a small-cap fund that offers exposure to some growth in a sector where growth is usually hard to come by, investors have paid up for the privilege. The ETF has a P/E ratio of almost 21.3, well above XLP’s and that of the S&P 500 Consumer Staples Index. [Financials: The Rodney Dangerfield Sector]
However, PSCC has walked the walk. The ETF’s two largest holdings – Hain Celestial (HAIN) and Darling International (DAR) are up an average of 34%. Another top-10 holding, Boston Beer (SAM), is up nearly 68%. Those stocks combine for 29% of PSCC’s weight.
The S&P SmallCap 600 Capped Consumer Staples Index, PSCC’s underlying index has outperformed the S&P SmallCap 600 Index this year and over the past three years, according to PowerShares data.
PowerShares S&P SmallCap Consumer Staples Portfolio
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of IWM.
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.