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Consumer Staples ETFs Riding High on Trade War Fears

Sweta Killa
CACI International (CACI) is seeing solid earnings estimate revision activity, and is a great company from a Zacks Industry Rank perspective.

Global trade war fears have started to make investors’ jittery, leading to a rotation of sectors away from industrials and financials into consumer staples and energy. In fact, the consumer staples sector garnered immense investors’ attention in June, piling up the most capital into the ultra-popular sector ETF among the suite of SPDR sector funds.

According to a Bloomberg report, Consumer Staples Select Sector SPDR Fund XLP saw $583 million of inflows in June, completely reversing the trend of the first five months of the year when the fund bled the most cash, losing more than $773 million in its AUM. The ETF gained 3.8% in June (read: 4 Sector ETFs Braved Trade Turmoil in Q2).

Inside The Popularity and Surge

The consumer staples sector is defensive as it includes a variety of items like food & beverages, non-durable household goods, hypermarkets and consumer supercenters that are essential for daily needs. These products see steady demand even during an economic downturn due to their low level of correlation with economic cycles. As such, these generally act as a safe haven amid political and economic turmoil. Stocks in these sectors generally outperform during periods of low growth and high uncertainty.

The bitter exchange of tit-for-tat tariff threats has sparked fears of global recession, thereby raising the appeal for consumer staples stocks. Additionally, the beaten down sector has made valuation of most stocks attractive compared to many others. Notably, the sector has shed 9.3% in the year-to-date timeframe. Per Bloomberg, valuations for the staples sector are "a lot more reasonable" right now thanks to higher interest rates, acting as a kind of proxy for investors like big dividends (read: Fed, Trade & Global Politics to Rule June: 6 ETF Picks).

The transition to this defensive sector over the growth ones will likely to continue at least in the near term given the escalation in trade dispute between the two largest economies in the world. Washington will implement import tariff on $34 billion worth of Chinese goods on Jul 6 and Beijing has promised to retaliate in kind on the same day. This has raised the chances of a full-blown trade war, benefiting the stocks in the consumer staples most.

That said, we have highlighted the best ETFs from the sector that have easily crushed XLP over the past month and will likely to do so in the weeks ahead. While these funds currently have a Zacks ETF Rank #4 (Sell) or #5 (Strong Sell), these are expected to get a near-term boost from flight to safety amid trade gyrations.

Invesco S&P SmallCap Consumer Staples ETF PSCC – Up 4.8%

This fund targets the small-cap segment of the sector by tracking the S&P SmallCap 600 Capped Consumer Staples Index. It holds 20 stocks in its basket with a tilt toward the top firm at 12.53% while other firms hold less than 8.9% of assets. From an industrial look, food products takes 47.4% share, followed by household products (15.5%), food and staples retailing (12.8%) and personal products (12.5%). The ETF has managed assets worth $48.5 million and trades in average daily volume of 4,000 shares. It charges 29 bps in annual fees and has a Zacks ETF Rank #4 with a Medium risk outlook (read: SmallCap Consumer Staples ETF Hits New 52-Week High).


iShares Edge MSCI Multifactor Consumer Staples ETF CNSF – Up 4.5%

This fund targets companies that have the potential to outperform the broader U.S. consumer staples sector and tracks the MSCI USA Consumer Staples Diversified Multiple-Factor Capped Index. Holding 28 stocks in its basket, it has large allocations to the top three firms, accounting for at least 9% share each. In terms of industrial exposure, about 55.8% of the portfolio is dominated by food, beverage and tobacco while food & staples retailing, and household and personal product take the remainder with a double-digit exposure each. CNSF has attracted $2.4 million in its asset base and trades in a meager volume of about 1000 shares. It charges 35 bps in fees per year and has a Zacks ETF Rank #5.

Invesco S&P 500 Equal Weight Consumer Staples ETF RHS - Up 4.1%

This fund tracks the S&P Equal Weight Consumer Staples Index, holding 32 stocks in equal weights. Food products takes the largest share at 38.05% while beverages, household products and food & staples retailing round off the next three spots with double-digit exposure each. The ETF has amassed $460 million in its asset base and trades in average daily volume of 36,000 shares. It charges 40 bps in annual fees and has a Zacks ETF Rank #5.

Fidelity MSCI Consumer Staples Index ETF FSTA - Up 3.9%

This fund tracks the MSCI USA IMI Consumer Staples Index, holding 93 stocks in its basket with double-digit concentration on the top two firms. Other firms hold no more than 8.8% share. The ETF is widely diversified across beverages, food and staples retailing, food products, household products, and tobacco. It has accumulated $256.7 million in its asset base while trading in a moderate volume of around 81,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #5 with a Medium risk outlook (read: Will Consumer ETFs Lose Momentum on Trump Tariffs?).

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