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Consumer Staples ETFs Could Find Some Relief

This article was originally published on ETFTrends.com.

The consumer staples sectors is the worst-performing group in the S&P 500 this year. The S&P 500 Consumer Staples Index closed May with a year-to-date loss of more than 12%, but some of the industry groups within the sector are sporting larger losses, weighing on the Consumer Staples Select SPDR (XLP) and other staples exchange traded funds in the process.

XLP devotes more than half its weight to beverage makers and food and staples retailers. Tobacco companies, which have recently seen their shares tumble, account for almost 12% of XLP’s roster. Dow components Procter & Gamble (PG) and Coca-Cola (KO) combine for over 21% of XLP’s weight. Procter & Gamble is one of just six members of the Dow Jones Industrial Average that has lost more than 10% this year.

Still, some market observers believe that bond yields cooperate, the sector could rebound.

Ed Yardeni of Yardeni Research “writes that in the past week, with the 10-year Treasury yield falling from 3.11% to 2.77%, the staples sector rallied—along with other bond proxies like utilities and real estate. He believes this outperformance can continue if yields on the 10-year note remain around 3%,” reports Teresa Rivas for Barron's.

Gloomy Technicals

XLP currently resides more than 16% below its 52-week high and more than 10% below its 200-day moving average. The sector is the sixth-largest in the S&P 500.

XLP provides “exposure to companies from the food and staples retailing, beverage, food product, tobacco, household product and personal product industries in the U.S.,” according to State Street.

“And staples stocks aren't resigned to their fate. Yardeni notes that they're revamping their product lineup and making acquisitions to make themselves more relevant. He cites Colgate-Palmolive (CL) and Procter & Gamble (PG), which have made deals in the professional skin-care and consumer-health businesses, respectively, that look to add faster-growing or wider-margin divisions to their portfolio,” according to Barron's.

Investors have pulled $1.04 billion from XLP since the start of the second quarter.

Rivals to XLP include the Vanguard Consumer Staples ETF (VDC) and the Fidelity MSCI Consumer Staples Index ETF (FSTA).

For more information on the consumer sector, visit our consumer staples category.