Bringing Some Excitement To Consumer Staples ETFs
Broadly speaking, the consumer staples sector, the sixth-largest sector weight in the S&P 500, is not known for growth and excitement. If anything, investors looking to embrace the likes of Procter & Gamble Co. (NYSE:PG), TheCoca-Cola Co(NYSE:KO) and Wal-Mart Stores, Inc. (NYSE:WMT) are arguably looking to avoid too much excitement.
However, there are ways to for investors to capture growth and momentum with staples, a sector not often known for those traits. In fact, momentum is a fine place to be right now because that investment factor is outperforming value by a wide margin this year. Among staples exchange traded funds rooted in momentum, there is the PowerShares DWA Consumer Staples Momentum Portfolio (NYSE:PSL).
With a year-to-date gain of just over 8 percent, PSL is easily outperforming its cap-weighted counterparts, its primary equal-weight rival and the thumping First Trust Consumer Staples AlphaDEX Fund (NYSE:FXG), another smart beta spin on the staples sector. Put simply, to this point in 2015, PSL is the year's top-performing consumer staples ETF.
A Closer Look
PSL follows the Dorsey Wright Consumer Staples Technical Leaders Index, a benchmark that is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 common stocks from the NASDAQ US Benchmark Index, according to PowerShares, the fourth-largest U.S. ETF issuer.
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With its emphasis on momentum, the $220.7 million PSL features some significant departures from traditional cap-weighted staples ETFs when it comes to individual holdings. For example, none of PSL's 32 holdings command weights in excess of 4.9 percent and only thetwo tobacco stocks found among the ETF's top 10 holdings would also be likely to be found among the top holdings in traditional staples ETFs.
Run-of-the-mill staples ETFs are usually excessively allocated to large- and mega-cap stocks, but PSL allocates less than a quarter of its weight to large caps. Rare is the staples ETF that features a stock like Monster Beverage Corp. (NASDAQ:MNST) among its top 10 holdings and rare is the staples fund that allocates more than half its weight to mid caps, but PSL is that fund.
Investors looking for a staples ETF that holds traditional fare such as Procter & Gamble and Coca-Cola should eschew PSL because the fund does not own those stocks. That is okay because over the past year, the Dorsey Wright Consumer Staples Technical Leaders Index has offered nearly double the returns of the S&P 500 consumer staples index and over the past three- and five-year periods, PSL has topped that index. PSL started tracking the Dorsey Wright index early last year.
Investors are clearly warming to PSL's story as the ETF has hauled in $150.6 million of its $220.7 million in assets under management just this year, a total topped by just 11 other PowerShares ETFs, according to issuer data.
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