With consumer prices rising, its important for advisors and investors to understand the role the Consumer Staples sector plays in a diversified portfolio, especially in these times of higher than usual inflation.
When inflation doubles, as the U.S. economy has seen over the last 12 months, consumer spending habits typically shift to frugality. Buying new Nike shoes and Coach purses can be put off, but spending on essentials like toothpaste, not so much.
The Consumer Staples ETF (XLP) tracks a market-cap-weighted index of consumer staples stocks selected from the S&P 500 and can be reflective of the shift in consumer spending toward basic consumer staples versus discretionary services. XLPs top holdings* are Procter & Gamble (14.45%), Pepsi (10.31%), Costco (9.65%), and Coca-Cola (9.47%). Rounding out the top 10, all with significant weightings, are Walmart, Mondelez (one of the worlds largest snack maker who owns Nabisco and Cadbury), tobacco companies Philp Morris and Altria, Colgate-Palmolive, and Target.
A Walk Through the Grocery Store
XLP represents a typical walk through a grocery store or the stores themselves. This is a very simple ETF to understand under the hood.
XLP delivers a representative basket of consumer staples firms. Because XLP pulls its stocks from the S&P 500 rather than the broad market, the funds holdings are nearly all large caps, which investors may appreciate for their familiarity and stability.
The Consumer Staples Select Sector SPDR fund seeks to provide exposure to stocks in the following industries: food and staples retailing, beverage, food products, tobacco, household, and personal products. The index is rebalanced quarterly to meet diversification requirements.
XLP was launched in 1998, making it a stalwart on the ETF market. The ETF has been through recessions, the Great Financial Crisis, and todays choppy economic times. With over $17 billion in assets under management and a low-cost expense ratio of 0.10%**, XLP offers advisors and investors an easy and inexpensive way to access this basket of large-cap companies that service basic consumer needs.
ETF investing can be simple to understand and convey to clients with a fund like XLP. The constituents are everyday products and the retailers where consumers patronize.
The key is understanding the role XLP can play in a diversified portfolio, and that it is one that has been battle tested during uncertain economic times and rising inflation. The consumer will always need basic consumer goods.
DISCLAIMER: This is a work of research and should not be taken as investment or financial advice. Therefore, Select Sector SPDRs or the publisher is not liable for any decision made based on the publication.
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*Holdings, Weightings & Assets as of 6/30/23 subject to change
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The S&P 500 Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market. The index is heavily weighted toward stocks with large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. The S&P 500 Index figures do not reflect any fees, expenses or taxes. An investor should consider investment objectives, risks, fees and expenses before investing.
One may not invest directly in an index.
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ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is distributor for the Select Sector SPDR Trust.
Company: Select Sector SPDRs
Contact: Dan Dolan*
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*Dan Dolan is a Registered Representative of ALPS Portfolio Solutions Distributor, Inc. ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is the distributor for the Select Sector SPDR Trust.
SEL006690 EXP 9/30/23
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