Published November 27, 2012
With market volatility expected to remain high and fears of the fiscal cliff entrenched in the minds of many investors, it is not surprising that consumer staples ETFs are receiving renewed attention. The proof is in the pudding. In the past week alone, the Consumer Staples Select Sector SPDR (XLP), the largest staples ETF by assets, has jumped 3.2 performance, an impressive for a supposedly low-beta ETF.
Home to highly recognizable names such has Procter & Gamble (PG), Coca-Cola (KO) and Wal-Mart (WMT) and the lowest expense ratio in the genre (just 0.18 percent), means it is not surprising that XLP dominates the staples the ETF conversation. That does not mean investors should limit their searches for staples ETFs to XLP and related, U.S.-focused fare.
The iShares S&P Global Consumer Staples Index Fund (KXI) is proving to be a credible alternative for those looking for international exposure.
"However, in 2013, both U.S. and international stocks should move higher," S&P Capital IQ said in a new research note. "In particular, we believe consumer staples stocks, with their relatively strong balance sheets, growing dividend streams and exposure to a still increasing global consumer base, could have relative appeal in the current environment. We think an ETF such as KXI that offers exposure to consumer staples companies, regardless of their geographic location, can provide investors some diversification in this sector, while carrying a reasonable expense ratio."
KXI, which has almost $497 million in assets under management, has annual expense ratio of 0.48 percent. The ETF is home to 105 stocks with 51 percent of the fund's country weight allocated to U.S. names. S&P Capital IQ rates the ETF Overweight, the firm's top rating.
"Overall, S&P Capital IQ views KXI's holdings as attractive and representing modest risk," the research firm said in the note. "In addition to having strong qualitative attributes for its holdings, KXI earns favorable ranking inputs for its modest three-year standard deviation through October 31 (11.1). While we do not rank ETFs based on dividend yield or beta, it is notable that KXI offers a yield of 2.3% and has a modest beta, relative to the S&P 500 Index, of 0.60."
Embracing KXI's global slant does not mean a play on obscure names. U.S. investors are likely to already be familiar with many of the ETF's top holdings. In addition to P&G, Coca-Cola and Wal-Mart, KXI's largest holding is Nestle (NSRGY). The world's largest food company accounts for 7.6 percent of the ETF's weight.
Other familiar international names in KXI's top-10 lineup include Diageo (NYSE: DGE), Anheuser-Busch InBev (BUD) and British American Tobacco. Six of KXI's top-10 holdings are rated Buy or Strong Buy by S&P Capital IQ.
XLP's 30-day SEC is nearly 55 basis points higher than KXI's, but in terms of year-to-date performance, KXI has been the winner with a gain of 15.6 percent compared to a gain of 9.3 percent for XLP.
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