The U.S. stock market has gained five consecutive years and 9 out of the past 10 years. Put another way, an offensive oriented aggressive approach toward stocks has worked like a charm. Is it time for investors to start playing defense?
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The consumers staples sector (NYSEARCA:XLP) is one industry sector for investing in stocks defensively.
The staples sector (NYSEARCA:VDC) owns companies that produce and distribute food, beverages, personal hygiene products, along with companies that are food and drug retailers.
The chart below plots the SPDR S&P 500 ETF (NYSEARCA:SPY) alongside the Consumer Staples Sector SPDR ETF and the Consumer Discretionary Sector SPDR ETF during the 2008-09 financial crisis. You’ll notice how XLP held up better against both the broader U.S. stock market (NYSEARCA:VTI) and the more offensively oriented consumer discretionary sector (XLY).
Top companies within the staples sector include Procter & Gamble, Coca-Cola, Colgate-Palmolive, PepsiCo, Wal-Mart Stores, and Walgreen.
Consumer staples are different from consumer discretionary stocks (NYSEARCA:XLY) because even during turbulent times people will still buy their basic necessities. On the other hand, discretionary stocks (NYSEARCA:VCR) are more sensitive to consumer spending habits and when times get tough, people usually cutback on entertainment, home furnishings, new cars, and travel.
Over the past year, consumers staples have outperformed both the S&P 500 (NYSEARCA:VOO) and discretionary stocks by gaining 16.1%. Over that same span, the S&P 500 has risen almost 14% while discretionary stocks climbed almost 11%.