Among sector exchange-traded funds, the once hot Consumer Staples Select Sect. SPDR (ETF) (NYSE:XLP) is poised to end 2016 in decent, though not spectacular, fashion. With just a few trading days left in the year, XLP, once one of this year's best-performing sector ETFs, sports a year-to-date gain of 5.7 percent.
XLP and other traditional consumer staples exchange-traded funds have recently been scuffling on concerns that the sector is pricey on valuation and in anticipation of the Federal Reserve's first interest rate hike of 2016.
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However, sometimes smaller is better, and that can be true of sector ETFs. For example, XLP's small-cap equivalent, the PowerShares S&P SmllCp Csmr Stpls Pfo (NASDAQ:PSCC), is enjoying a banner year. Up nearly 29 percent year-to-date, PSCC is easily 2016's best-performing consumer staples ETF.
Lower Beta Holdings
Not surprisingly, the differences between a staples ETF that holds lower beta fare such as Procter & Gamble Co (NYSE:PG) and The Coca-Cola Co (NYSE:KO), and one where there the holdings' average market cap is $1.7 billion, just a few days of work for P&G or Coke, are significant.
PSCC is home to just 16 stocks, a significantly smaller bench than XLP's. Nearly 60 percent of PSCC's holdings are food makers, while the remainder of the small-cap staples ETF's lineup is divided between food retailers, household products, personal products and tobacco stocks.
PSCC tracks the S&P SmallCap 600 Capped Consumer Staples Index, the staples offshoot of the widely followed S&P SmallCap 600 Index. This year, PSCC is trading slightly ahead of the S&P SmallCap 600, while topping the Russell 2000 Index by 550 basis points.
Not surprisingly, PSCC is more a value than growth play as nearly half the ETF's holdings are considered value stocks while just over 15 percent are considered growth stocks.
Just two stocks B&G Foods Inc. (NYSE:BGS) and Darling Ingredients Inc (NYSE:DAR) command nearly a quarter of PSCC's weight.
There is potential for some of PSCC's holdings to be takeover markets, particularly when considering the ETF's small average market cap, highlighting PSCC's utility as a complement to a diversified, large-cap staples ETF.
Several of PSCC's 16 holdings have previously been rumored to be takeover targets.
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