That could imply investors are favoring defensive, lower-beta fare. If that is indeed true, that preference for defensive sectors has not matriculated to consumer staples ETFs. The Consumer Staples Select Sector SPDR (XLP) , Fidelity MSCI Consumer Staples Index ETF (FSTA) and Vanguard Consumer Staples ETF (VDC) are saddled with year-to-date losses of 4.7%, 4.8% and 4.9%, respectively. [Selective With Staples]
Although staples stocks and ETFs are normally prized for their dependable dividends and low beta nature, particularly during periods of increased market volatility, the sector’s conservative reputation belies its price action this year as the aforementioned ETFs rank near the bottom of major sector funds. [Safe ETF Ideas for 2014]
There are fundamental reasons for investors’ disdain of staples stocks this year. First, the sector is traditionally pricey relative to the broader market. Late last year, only consumer discretionary names were more expensive among the S&P 500 sectors. [Financials Look Inexpensive Compared to Other Sectors]
Second, employment and wage growth in the U.S. has not been strong enough to prompt consumers to indulge in premium brands with every trip to the local grocery store.
“The long and the short of the current environment may be that U.S. companies, particularly consumer-oriented corporations, may not be able to increase their profit margins by charging more for products. That leaves cost-cutting and share buybacks as the primary ticket for ‘goosing’ results until employment gains translate into wage gains,” writes Gary Gordon.
Then there is the technical damage. XLP and VDC are barely above their 200-day moving averages. Of XLP’s top-10 holdings, only CVS Caremark (CVS), Colgate-Palmolive (CL), Mondelez (MDLZ) and Walgreen (MDLZ) are above their 200-day lines and Colgate-Palmolive looks ready to violate that line soon. XLP’s top-10 holdings represent nearly two-thirds of the ETF’s weight.
Consumer Staples Select Sector SPDR