The consumer staples sector, the sixth-largest sector weight in the S&P 500, is not usually thought of as being controversial. Compare the staples group at large to the financial services and energy sectors, staples are usually boring when it comes to generated controversy. An argument can even be made that, for different reasons, health care and materials stocks are often more controversial than staples names.
At least that is how things usually are, but what is typical when it comes to boring old staples stocks has been thrown out the window in recent months. It can even be said that the sector has been home to a firestorm of controversy. However, despite some negative headlines pertaining to marquee names in the sector, consumer staples have remained solid in recent months.
Take the example of Procter & Gamble (NYSE:PG). The Ohio-based Dow component is the world's largest consumer products company and is the largest holding in the Consumer Staples Select Sector SPDR (NYSE:XLP), Vanguard Consumer Staples ETF (NYSE:VDC) and the iShares Dow Jones U.S. Consumer Goods Sector Index Fund (NYSE:IYK).
P&G is not usually a stock that can be deemed controversial, but the stock has seen its share of unsolicited press since July when it was revealed activist investor Bill Ackman took a stake in the company. Common logic has been that Ackman is either angling for significant management changes, for P&G to spin-off more non-essential brands to unlock shareholder value or both.
Despite what has the potential to be an acrimonious relationship between Ackman and P&G, the aforementioned staples ETFs have been quite sturdy. That is the case with weights to P&G of 13.6 percent for XLP, 10.7 percent for VDC and almost 12.2 percent for IYK.
Then there was the decision by New York City to ban sales of soda and other sweetened drinks in serving sizes larger than 16 ounces. Over the past month, shares of Coca-Cola (NYSE:KO), the world's largest soft-drink maker, are up 2.5 percent. That gain essentially cancels out the 2.6 percent decline for rival PepsiCo (NYSE:PEP) over the same time.
There are couple of points to remember about the New York soda ban when it comes the potential impact the ban may have going forward on staples ETFs. First, New York and California have a tendency to implement these types of measures (for example, foie gras is illegal in California), but that does not mean what flies in Manhattan or San Francisco will fly in Des Moines or Tulsa.
To that end, Coca-Cola and Pepsi products are not completely banned in New York and these truly global companies being talked about.
The pair combine for 15 percent of XLP's weight, almost 17 percent of VDC's weight and 16.4 of IYK's, but the ETFs are all higher in the past month.
Of course, it cannot be forgotten that tobacco stocks fall under staples jurisdiction and tobacco names are always controversial. Philip Morris (NYSE:PM), which is more focused on global sales, and Altria (NYSE:MO) combine for over 15 percent of XLP's weight.
This is noteworthy because, these days, it is not just the U.S. that is taking are hard stand against smoking and big tobacco companies. Countries from Singapore to India and plenty of others are cracking down on tobacco consumption.
Still, Philip Morris is up almost four percent in the past 90 days. Pair Philip Morris with Altira and that is 14.1 percent of VDC's weight and 14 percent of IYK's weight. Something to keep in mind about smoking bans: In 1998, California became the first state to implement a wide-ranging smoking ban and the ban has only grown in scope since then. In that time, shares of Altria have more than tripled.
Bottom line: Staples ETFs may be home to more controversy than investors would expect, but these funds have proven resilient in the face of less-than-cooperative headlines.
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