Ominous Signs for Consumer Staples ETFs
This article was originally published on ETFTrends.com.
The normally boring, defensive consumer staples sector has been anything but this year. The Consumer Staples Select SPDR (XLP) , the largest ETF tracking the consumer staples sector, is lower by nearly 12% year-to-date, underscoring the point that staples ETFs are among the worst-performing sector funds.
Unfortunately, ominous signs are mounting for the usually safe consumer staples sector. Investors are not waiting around to see how things play. XLP has seen $1.26 billion in year-to-date outflows.
“Last week, the consumer staples sector posted a 4 percent decline, its third in two months. That's a phenomenon that hasn't been seen in nearly a decade,” reports CNBC.
Why Consumer Staples Are Lagging
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.
The ETF 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.
Related: Consumer Staples ETFs Try to Shake Laggard Ways
With higher beta, cyclical sectors leading U.S. equity markets higher this year, some defensive sectors are lagging. That is the case with consumer staples. Amid fears of rising interest rates and concerns that the sector is overvalued even relative to its lofty historical norms, the consumer staples sector has recently encountered some headwinds.
“Consumer staples stocks traded in overbought territory at the beginning of the year but fell sharply into oversold levels during the early February sell-off on broader markets. The XLP's relative strength index, a measure of the overbought or oversold conditions of a security, currently trades at 32. A reading below 30 indicates oversold territory,” according to CNBC.
XLP, which holds 34 stocks, has a dividend yield of 2.99%, according to issuer data. That yield will move higher if the ETF's prices continues faltering.
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.
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