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Investing in the essentials through consumer staples ETFs
Investors are turning to consumer staples ETFs for a simple reason: they’re essential, irrespective of market conditions.
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Federal Reserve Chairman Jerome Powell announced on September 21st that the central bank is raising its interest rate by another 0.75 basis points in a bid to tame persistent inflation. The outlook for 2023 (and beyond) is uncertain as the possibility of a recession is likely according to some economists. One such economist is Steve Hanke from John Hopkins University, who recently stated the U.S. is due for a “whopper of a recession” for the upcoming year. Other economists assert we are already in one if we go by the technical definition of a recession, in which the GDP contracts for two consecutive quarters. Regardless of which side of the equation you are on, the outlook for the near future is dubious at best. As an investor, navigating this market environment poses many challenges. Consumers staples ETFs may offer a potential degree of stability in an uncertain economic landscape.
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What are consumer staples?
Consumer staples are exactly as they sound – everyday necessities that people rely on for their daily needs, such as food, clothing, hygiene products and household items. In other words, regardless of market conditions, these staple items are essential for daily living and will continue to be bought – making the companies that produce them an attractive investment opportunity.
Why invest in consumer staples?
Investing in consumer staples in the current environment may offer several advantages including some insulation against market volatility, relative stability in terms of earnings, as well as dividends. And with the macro-outlook for the rest of this year - and beyond - remaining unsettled, not to mention heightened geopolitical risk, it may be prudent to take a defensive stance for the foreseeable future.
A few well-known consumer staple companies you may already know of, and likely purchase from, include groups such as Walmart, Costco, Coca-Cola, PepsiCo, and Proctor & Gamble. However, stock picking can be risky, even for sophisticated investors, so the timeless principle of diversifying one’s portfolio remains the most reliable method to decrease risk and optimize long-term returns. ETFs offer an efficient, liquid and cost-effective way to invest, providing access to a diversified basket of securities. The following funds may be interesting for investors seeking exposure to the investment potential of consumer staples.
VDC - (Vanguard Consumer Staples Index Fund ETF)
- AUM: 6,882.02 M
- Total Expense Ratio: 0.1%
- YTD Performance: -3.12%
- 3-Year Performance: +31.67%
KXI - (iShares Global Consumer Staples ETF)
- AUM: 1,260.73 M
- Total Expense Ratio: 0.4%
- YTD Performance: -7.50%
- 3-Year Performance: +16.09%
FXG- (First Trust Consumer Staples AlphaDEX Fund)
- AUM: 668.24 M
- Total Expense Ratio: 0.64%
- YTD Performance: +3.04%
- 3-Year Performance: +36.62%
- Data as of September 13th, 2022.
Please note this article is for information purposes only and does not constitute investment advice.
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