Should You Invest in the Consumer Staples Select Sector SPDR ETF (XLP)?

view original post

Launched on 12/16/1998, the Consumer Staples Select Sector SPDR ETF (XLP) is a passively managed exchange traded fund designed to provide a broad exposure to the Consumer Staples – Broad segment of the equity market.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Consumer Staples – Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 12, placing it in bottom 25%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $14.26 billion, making it the largest ETF attempting to match the performance of the Consumer Staples – Broad segment of the equity market. XLP seeks to match the performance of the Consumer Staples Select Sector Index before fees and expenses.

The Consumer Staples Select Sector Index seeks to provide an effective representation of the consumer staples sector of the S&P 500 Index.

Costs

Investors should also pay attention to an ETF’s expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.09%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 2.82%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund’s holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Consumer Staples sector–about 100% of the portfolio.

Looking at individual holdings, Procter + Gamble Co/the (PG) accounts for about 14.47% of total assets, followed by Costco Wholesale Corp (COST) and Walmart Inc (WMT).

The top 10 holdings account for about 69.12% of total assets under management.

Performance and Risk

Year-to-date, the Consumer Staples Select Sector SPDR ETF has added roughly 4.11% so far, and was up about 0.92% over the last 12 months (as of 04/22/2024). XLP has traded between $66.22 and $77.50 in this past 52-week period.

The ETF has a beta of 0.59 and standard deviation of 13.41% for the trailing three-year period, making it a medium risk choice in the space. With about 40 holdings, it has more concentrated exposure than peers.

Alternatives

Consumer Staples Select Sector SPDR ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XLP is a reasonable option for those seeking exposure to the Consumer Staples ETFs area of the market. Investors might also want to consider some other ETF options in the space.

IShares U.S. Consumer Staples ETF (IYK) tracks Dow Jones U.S. Consumer Goods Index and the Vanguard Consumer Staples ETF (VDC) tracks MSCI US Investable Market Consumer Staples 25/50 Index. IShares U.S. Consumer Staples ETF has $1.26 billion in assets, Vanguard Consumer Staples ETF has $6.43 billion. IYK has an expense ratio of 0.40% and VDC charges 0.10%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report