7 smart consumer ETFs to buy for stability

Investors looking for portfolio consistency should consider these funds.

  • By Jeff Reeves,
  • U.S. News & World Report
  • – 05/08/2019
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Although recent economic reports from Europe, China and the U.S. seem to be better than expected, global performance is not surging. Europe is running at just a 2% annual growth rate or so and forecasts for 2019 GDP growth in the U.S. are only slightly better.

It's worth considering whether now may be a wise time to get more defensive with your money, rather than rely on growth-oriented technology names. Consumer staples stocks that sell soap or food may not be flashy, but they offer unrivaled stability and don't need soaring growth to deliver success.

If you're looking for investment consistency, here are seven exchange-traded funds to reach this sector.

Vanguard Consumer Staples ETF

This leading consumer staples ETF is the simple solution for those looking to invest in the most popular brands that appear in their cupboards and closets. The fund boasts more than $5 billion in total assets spread across 92 companies like Gillette shaving products manufacturer Procter & Gamble Co. (PG) and soft drink icon Coca-Cola Co. (KO). No matter the broader economic environment, chances are that stocks like this are going to come out alright. And with a low expense ratio of 0.1%, or just $10 annually in fees on every $10,000 invested, you get diversification across this low-risk sector in an affordable way.

Consumer Staples Select Sector SPDR ETF

A bigger fund than the prior ETF, XLP has $11 billion in assets at present. But interestingly, this ETF has a much smaller list of components with a mere 33 total holdings in the fund. The names are familiar at the top, however, with P&G and Coke along with big box giant Walmart (WMT). There are pitfalls to having such a small list of stocks, since XLP is less diversified than others. However, a laser focus on only the largest brands in the space may be an appealing tactic. With an average market cap of about $130 billion across its holdings, only a very large company will make the cut.

iShares US Consumer Goods ETF

If you balked at seeing Walmart on that prior list of holdings, then you may want to consider this iShares fund that cuts out staples retailers or service stocks that can creep into other lists. That's because in the eyes of some investors, grocery stores are not in the same class as packaged foods companies. Also, some of the 100-plus holdings may not exactly strike you as staples, such as sports apparel giant Nike (NKE). Still, dealing with only physical goods does have its appeal if you're an investor looking to cut out the risk of smaller margins at a point of sale in the event global growth slows.

iShares Global Consumer Staples ETF

Why limit yourself to just U.S.-based companies if you're looking to invest in the staples sector? After all, some of the most recognizable consumer names are actually based overseas – including Swiss chocolate giant Nestle (NSRGY), French makeup behemoth L'Oreal (LRLCY) and U.K. conglomerate Uniliver (UL). An added bonus to the geographic diversification is that these major international brands all tend to be consistent dividend payers, too, and this iShares fund boasts a 2.8% yield to add a bit of income.

Invesco S&P 500 Equal Weight Consumer Discretionary ETF

RCD is an equal-weight fund with about 60 holdings. Unlike the other funds, it rebalances regularly to ensure that a single position doesn't get to be more than about 1.7% of the portfolio. Considering giants like Coca-Cola can represents 10% or more in some staples funds, this diversified approach may appeal to those who have an eye toward reducing risk above all else. Just keep in mind that this equal weighting does mean smaller dividend payers get an equal seat at the table, however, and the yield drops to a paltry 1.5% as a result of this trade-off.

First Trust Consumer Staples AlphaDEX Fund

If you've seen this kind of First Trust-branded fund in other sectors, you're likely familiar with the AlphaDEX strategy: take all the stocks that are in a given sector, then use a qualitative screening process to try and cut out the weakest in the bunch. That system is on display again with FXG, with a focus on staples stocks that show share price momentum, sales growth and attractive return on assets, among other characteristics. The result is a narrow list of 35 total stocks, but potentially one that spotlights the best-performing staples stocks in the sector.

The Organics ETF

Provided by Janus Henderson investors, this fund has been around since 2016 and focuses on the organics revolution in consumer staples. The fund casts a wider net than just produce in the grocery store, however, with the stated objective to "capitalize on our increasing desire for naturally-derived food and personal care items" including beverages, cosmetics, nutritional supplements or even products that boast sustainably sourced packaging. This fund is a great way to play the consumer staples sector while feeling good about your investment if you're environmentally conscious. Top holdings include Sprouts Farmers Market (SFM) and beverage company Hain Celestial Group (HAIN).

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