The consumer staples sector, whether it be by single stocks or exchange traded funds, is an investor favorite due to its low beta ways and tidy dividend yields. However, when it comes to consumer staples ETFs, a different way of looking at the sector can yield superior outcomes.
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The Guggenheim S&P 500 Equal-Weight Consumer Staples ETF (RHS) is proof positive of the advantages of equal-weighting at the sector level. Guggenheim is one of the pioneers of the smart beta ETF movement, particularly when it comes to equal-weight funds. For example, the wildly popular Guggenheim S&P 500 Equal Weight ETF (RSP), the equal-weight spin on the S&P 500, has a lengthy track record of outpacing the cap-weighted S&P 500.
Additionally, the May through October period, also known as the weaker of the two six-month periods for stocks, is conducive to being long staples stocks and ETFs like RHS. Historical data confirm as much.
Since RHS debuted in November 2006, the ETF has consistently topped the S&P during the May-October time frame with an average annual total return of 3.66 percent to the S&P's 1.35 percent. During the often-trying May-October stretch RHS also regularly outpaced the S&P 500 Consumer Staples Index during monthly rolling time periods over one year (71 percent), three years (88 percent), five years (81 percent) and seven years (100 percent).
The $765.3 million RHS holds 37 stocks, none of which account for more than 3.1 percent of the ETF's lineup. In other words, this an ETF where Dr. Pepper Snapple Group (DPS) and Pepsico Inc. (PEP) garner essentially the same weights.
Other holdings in RHS include Dow components Procter & Gamble Co (PG) and Wal-Mart Stores, Inc. (WMT), the world's largest retailer. But those stocks combine for barely more than 5 percent of RHS's weight whereas they usually represent nearly a quarter of a cap-weighted staples ETF's lineup.
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RHS, which carries a four-star Morningstar rating, is in the top 1 percent of Morningstar's defensive ETFs category for the trailing one- and five-year periods.
Of course, smart investors boil things down to risk-adjusted returns. Over the past three years, RHS is up 54.6 percent compared to 39.8 percent for the cap-weighted Vanguard Consumer Staples ETF (VDC). Over that period, RHS has only been 30 basis points more volatile than its cap-weighted competitor.
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