With the recent erosion in the healthcare sector, just one of the nine sector SPDR exchange traded funds is sporting a year-to-date gain and a modest one at that. Congratulations to the Consumer Discretionary Select Sector SPDR (NYSE:XLY) for heading into Wednesday with a 2015 gain of 1.3 percent.
Sticking with the consumer theme, the Consumer Staples Select Sector SPDR (NYSE:XLP) is the next best/least bad of the nine SPDRs with a year-to-date loss of 1.7 percent. In volatile times like these, the iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX) is up more than 33 percent over the past 90 days, staples stocks and ETFs can provide some (emphasis on "some") comfortto beleaguered investors.
As a slow-moving sector prized more for predictably than growth, consumer staples stocks are usually favored by long-term, buy-and-hold investors. The sector has rewarded those investors' faith. Over the past five decades, staples was the second-best sector, but on a risk-adjusted basis, staples was the best, according to Morningstar.
Focusing on more recent time frame, XLP has returned 41.5 percent over the past three years, beating the S&P 500 by 270 basis points while being 120 basis points less volatile than the U.S. benchmark index.
"In addition to producing the second-highest return, consumer staples has had the second-lowest volatility of any market sector since 1962, meaning it has produced more consistent returns from one year to the next. This is likely driven by the more consistent nature of the demand for everyday staples items such as toothpaste and diapers, which people tend to buy in similar amounts regardless of the ups and downs of the economy. Because of this, investments in consumer staples have tended not to lose as much during bear markets as investments in other sectors. And during the past 50 years, consumer staples has experienced fewer bear markets (a correction of more than 20%) than the broad stock market overall, and is tied with utilities for the fewest bear markets of any equity sector," according to Morningstar.
Other metrics highlight the stability of consumer staples ETFs. For example, the iShares U.S. Consumer Goods ETF (NYSE:IYK) has a three-year standard deviation of 10.3 percent, just above the 9.55 percent found on the iShares Core S&P 500 ETF (NYSE:IVV), according to iShares data.
Staples' reputation for being one of the least volatile sectors explains why the group is a backstop in some of the most popular low volatility ETFs. The PowerShares S&P 500 Low Volatility Portfolio (NYSE:SPLV) has a consumer staples weight of 22.2 percent, that ETF's second-largest sector allocation. The iShares MSCI USA Minimum Volatility ETF (NYSE:USMV) has a 14.7 percent staples weight, its fourth-largest sector allocation.
"Additional volatility in global economies, interest rates, and currencies could drive investor uncertainty and would likely benefit the sector, which has historically been an attractive target in a flight to safety. In any event, consumer staples should continue to benefit from its reputation for steady growth, dividend income, and low volatility," adds Morningstar.
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