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Time to Nibble at Consumer Staples ETFs?

This article was originally published on ETFTrends.com.

The consumer staples sector has been a dud for much of 2018 and those struggles are continuing in recent days. For example, the Consumer Staples Select SPDR (XLP) , the largest ETF tracking the consumer staples sector, is down more than 6% over the past month, extending its year-to-date loss to over 13%.

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.

While XLP and rival consumer staples ETFs have been drubbed this year, some market observers argue that now could be an ideal time to revisit the downtrodden sector.

Bullish Talk for Consumer Staples

Chad Morganlander, portfolio manager at Washington Crossing Advisors “remains bullish on the sector even as the group sets itself up for its first yearly loss in a decade. The XLP consumer staples ETF is down 13 percent for the year, on track for its worst annual performance since a 17 percent decline in 2008. The ETF has dropped 16 percent since hitting an all-time intraday high on Jan. 29,” reports CNBC.

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.

“Hormel, Procter & Gamble, and Hershey's are three names that could outpace the rest of the sector, according to Morganlander,” reports CNBC. “All three are negative for the year. Procter & Gamble has dropped 21 percent and currently trades in bear market territory, Hershey is down 19 percent and Hormel has dropped 2.5 percent.”

Dow component Procter & Gamble is usually the largest holding in cap-weighted consumer staples ETFs, such as XLP.

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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