Defensive stocks and sectors have been in vogue this year, a theme that is benefiting the consumer staples sector in a big way. Among traditional sector exchange traded funds, the Consumer Staples Select Sect. SPDR (ETF) (NYSE: XLP) is one of the year's best with a gain of 11.2 percent.
It's PBJ Time
Investors looking for more focused approaches to the consumer staples sector have other options in the ETF arena, including the PowerShares Dynamic Food & Beverage(ETF) (NYSE: PBJ). As its name implies, the PowerShares Dynamic Food & Beverage Portfolio focuses on food and beverage stocks, excluding the household goods, personal products and tobacco names usually found in standard staples ETFs.
Exclusion of those industries does not necessarily work against PBJ. For example, the ETF is up 8 percent this year after being one of just 43 ETFs to hit all-time highs last Friday. 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.
What Makes PBJ So Special
By emphasizing food and beverage names, PBJ allocates larger chunks of its weight to some high-flying staples than are found in the usual ETFs tracking the sector. For example, PBJ's weight of almost 5.3 percent to General Mills, Inc. (NYSE: GIS) is the largest to that stock among all ETFs and is more than double XLP's weight to that stock.
That is a plus in a year in which shares of General Mills are higher by more than 26 percent. Interestingly, PepsiCo, Inc. (NYSE: PEP) is the only stock found in the top 10 holdings of both PBJ and XLP.
PBJ has some other traits that are advantageous in the current environment. While large-caps across the growth, value and blend spectrum 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 30 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.
The $190.6 million PBJ, which is over 11 years old, holds 30 stocks. PBJ charges 0.58 percent a year, or $58 on a $10,000 investment.
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Disclosure: Todd Shriber owns shares of General Mills.
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