This year is an election year and that could mean increased volatility for equities as the November 8 election day nears. And if volatility rises, investors are likely to favor lower beta sectors, such as consumer staples, along with exchange trade funds such as the Consumer Staples Select SPDR (XLP) .
Consumer staples stocks and exchange traded funds (ETFs) can be considered resurgent following a trying 2015. Last year, staples ETFs had their hands full with rising rate-related issues.
The defensive consumer staples sector has been one of the year’s best performing areas of the S&P 500 as investors turned to more conservative plays in a volatile market, reports Stephanie Yang for CNBC.
Additionally, the time is right to consider consumer staples ETFs.
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The sustainable nature of the consumer staples sector could help investors weather a potential storm in the summer months.
Staples ETFs such as XLP, the largest consumer staples ETF on the market, and rivals, including the Vanguard Consumer Staples ETF (VDC) and the Fidelity MSCI Consumer Staples Index ETF (FSTA) , could be investor favorites if polls show a highly competitive presidential election as the summer months drag along.
“When equity market uncertainty rises, Consumer Staples typically outperforms while Information Technology lags. From a factor perspective, the past decade shows that when equity market uncertainty increases, stocks with high dividend yield and low volatility outperform. In contrast, both high growth stocks and low valuation companies underperform their respective counterparts,” according to part of a Goldman Sachs note posted by Ben Levisohn of Barron’s.
The sustainable nature of the consumer staples sector could help investors weather a potential storm in the summer months. Since April 30, 1945, the S&P 500 rose in price an average 1.4% from May through October, compared to an average 6.8% from November through April, writes Todd Rosenbluth, S&P Global Market Intelligence Director of ETF Research, in a research note.
XLP shows a beta of 0.74 relative to the S&P 500 index – a 1 reading indicates a security with move with the market, but a lower beta implies the security is less volatile than the market.
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Consumer Staples Select SPDR