S&P Reiterates Overweight Rating on Staples ETFs

Amid a volatile market environment in 2012, investors have embraced a favorite hideout at the sector level: Consumer Staples. Year to date, the Consumer Staples sector, which represented about 11.2 percent of the S&P 500 Index was up 10.3 percent (price only), trailing the 12.8 percent rise for the S&P 500, according to a research note published by S&P Capital IQ.

Still, S&P Capital IQ remains bullish on the staples sectors and reiterated Overweight ratings on three ETFs tracking staples stocks. Those funds are the Consumer Staples Select Sector SPDR (NYSE:XLP), the iShares Dow Jones US Consumer Goods Index Fund (NYSE:IYK) and the Vanguard Consumer Staples ETF (NYSE:VDC). With $5.86 billion in assets under management and an expense ratio of 0.18 percent, XLP is the largest and least expensive staples ETF.

S&P said it rates another four staples ETFs with at least $100 million in AUM as Market-weight.

"Within the Risk Considerations category, each of the three ETFs received a relatively favorable appraisal from the S&P Quality Rank metric, which suggests a relatively good earnings and dividend track record for companies of which these ETFs owned shares," S&P said in the note.

Year-to-date, VDC is the performance leader of the trio with a 10 percent gain. XLP is next with a gain of 8.65 percent while IYK is up 7.45 percent.

Within all three ETFs, the top-10 holdings account for dominant positions. VDC's top-10 lineup represents nearly 66 percent of the fund's while IYK's top-10 constituents account for almost 59 percent of the ETF's overall weight. XLP's top-10 is equivalent to approximately 70 percent of that ETF's weight.

Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO) and Philip Morris (NYSE:PM), in that order, are the top-three holdings in each fund. All three ETFs also feature Wal-Mart (NYSE:WMT), PepsiCo (NYSE:PEP), Kraft (NASDAQ:KFT) and Altria (NYSE:MO) among the top-10 holdings.

"Among other risk-related analytics, all of these ETFs also had a favorable appraisal related to standard deviation, which measures price volatility of the ETF," S&P said in the note. "Also, XLP had a relatively favorable S&P credit rating appraisal (related to holdings; based on publicly available credit rating information from a separate S&P unit), compared to a more mid-range relative assessment for the other two ETFs. However, the holdings-related S&P Risk Assessment from S&P Capital IQ equity analysts was relatively unfavorable for all three of the ETFs."

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