Among sector exchange-traded funds, the once hot Consumer Staples Select Sect. SPDR (ETF) (XLP) is poised to end 2016 in decent, though not spectacular, fashion. With just a few trading days left in the year, XLP, once one of this year's best-performing sector ETFs, sports a year-to-date gain of 5.7 percent.
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XLP and other traditional consumer staples exchange-traded funds have recently been scuffling on concerns that the sector is pricey on valuation and in anticipation of the Federal Reserve's first interest rate hike of 2016.
However, sometimes smaller is better, and that can be true of sector ETFs. For example, XLP's small-cap equivalent, the PowerShares S&P SmllCp Csmr Stpls Pfo (PSCC), is enjoying a banner year. Up nearly 29 percent year-to-date, PSCC is easily 2016's best-performing consumer staples ETF.
Lower Beta Holdings
Not surprisingly, the differences between a staples ETF that holds lower beta fare such as Procter & Gamble Co (PG) and The Coca-Cola Co (KO), and one where there the holdings' average market cap is $1.7 billion, just a few days of work for P&G or Coke, are significant.
PSCC is home to just 16 stocks, a significantly smaller bench than XLP's. Nearly 60 percent of PSCC's holdings are food makers, while the remainder of the small-cap staples ETF's lineup is divided between food retailers, household products, personal products and tobacco stocks.
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PSCC tracks the S&P SmallCap 600 Capped Consumer Staples Index, the staples offshoot of the widely followed S&P SmallCap 600 Index. This year, PSCC is trading slightly ahead of the S&P SmallCap 600, while topping the Russell 2000 Index by 550 basis points.
Not surprisingly, PSCC is more a value than growth play as nearly half the ETF's holdings are considered value stocks while just over 15 percent are considered growth stocks.
There is potential for some of PSCC's holdings to be takeover markets, particularly when considering the ETF's small average market cap, highlighting PSCC's utility as a complement to a diversified, large-cap staples ETF.
Several of PSCC's 16 holdings have previously been rumored to be takeover targets.
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