Despite some pullbacks at the hands of strong dollar/rising interest rate fears, consumer staples ETFs remain popular with investors. The dominant names in the group, the Consumer Staples Select Sector SPDR (XLP) and the Vanguard Consumer Staples ETF (VDC) , are down an average of 2% in the past month.
That does not mean investors are running for the exits. Actually, the opposite is true. In the past month, XLP has raked in $450.7 million in assets under management, according to Index Universe data. With above-average dividend yields and low risk exposure, defensive consumer staples ETFs have been prized investors and that does not appear to be changing despite evidence of a move out of utilities ETFs into higher-beta sector funds. [Staples ETFs for Yield]
Investors can grab the best of both worlds – defensive staples and participation in the cyclical rotation – with a more adventurous approach to staples ETFs. The iShares S&P Global Consumer Staples Sector Index Fund (KXI) is the way to accomplish those goals. KXI is nearly seven years old and has $608 million in assets under management. [Going International With Staples ETFs]
KXI is home to 102 stocks and makes good on the international bias advertised in its name. U.S. stocks, such as Procter & Gamble (PG), Coca-Cola (KO) and PepsiCo (PEP), account for over 51% of the ETF’s weight. However, the U.K., Switzerland and Japan combine for another 27% of the ETF’s weight and the fund is home to familiar international staples names such as Nestle, Diageo (DEO) and Anheuser-Busch InBev (BUD).
The international exposure does not mean a dramatic increase in volatility. KXI has a beta of 0.79 against the S&P 500 and a three-year standard deviation of 10.9%, according to iShares data. XLP has a beta of 0.71 and annualized volatility of 9.6%.
KXI also delivers on another feature investors love about staples stocks: Dividend growth. One of the primary reasons why stocks such as Procter & Gamble and Pepsi remain popular with investors is the dependable, annual dividend increases. Those growing dividends have helped KXI’s payout grow to over $2 a share last year from about $1.25 a share in 2009.
However, there is an important element to KXI’s story that cannot go overlooked and that is currency risk. If the U.S. dollar strengthens, over half of the ETF’s holding would be vulnerable. On the other hand, a strong euro, Swiss franc and British pound could be problematic for the ETF, though not to the degree that a strong greenback would be.
iShares S&P Global Consumer Staples Sector Index Fund
ETF Trends editorial team contributed to this post.
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.