Consumer staples sector-related exchange traded funds have been a small bright spot in the U.S. stock markets this year.
Consumer brands like Molson Coors Beverage Co., Hershey Co., and Campbell Soup Co. have all registered double-digit gains in 2022, compared to the S&P 500, which has declined 18% this year, the Wall Street Journal reported.
Meanwhile, consumer sector ETFs have also outperformed the broader U.S. benchmark. Year-to-date, the First Trust Consumer Staples AlphaDEX Fund (FXG) was up 0.3%, the First Trust Nasdaq Food & Beverage ETF (FTXG) was 0.3% higher, the Invesco S&P 500® Equal Weight Consumer Staples ETF (RHS) was down 0.1%, and the more popularly monitored Consumer Staples Select Sector SPDR Fund (XLP) dipped 4.4%.
Consumer staples companies are typically seen as a haven during volatile market conditions and typically still hold up during recessionary periods since consumers still require basic goods regardless of the current economic environment. Furthermore, investors buy up these companies for their strong dividend yields and steady business practices.
“The shift over the next quarter should be to be more defensive,” Justin Burgin, director of equity research at Ameriprise Financial, told the WSJ. “In bear markets, the portfolio that loses the least is the winner.”
Burgin pointed out that staples companies have exhibited nearly unchanged, albeit lower, profit margins for the past decade, so they are relatively more stable investments.
“It’s steady. It doesn’t change… It’s a good place to kind of hide out,” Burgin added.
Other analysts also argued that consumer sector companies, especially big-box retailers, could hold up better than other industries in the short term with costs are rising from labor to fuel.
“In the near term, having the staples part of the market is an important part of the portfolio,” Mona Mahajan, a senior investment strategist at Edward Jones, told the WSJ. “There’s a focus on the lower-end consumer and where they’re gravitating as inflation starts to bite a little bit.”
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