The consumer staple sector experienced a roller coaster ride in 2014. In the beginning, the companies had to bear the effects of a prolonged and severe winter, increasing food costs, a weak consumer spending environment and currency headwinds. However, things began to improve in the second half of the year on the back of a moderate economic recovery, better job prospects, rising wages, improved business and renewed optimism as a result of the housing recovery.
With oil and natural gas prices subsiding, consumers are now left with more disposable income. Commodity costs have in many cases stabilized, with some at five year lows. Consumers are also expecting lower inflation primarily due to lower gas prices. (Read: 3 Consumer Staples ETFs Hitting 52- Week Highs)
Not surprisingly, consumer staple stocks are now performing well compared with the S&P 500 as a whole. In fact, the rebound can be seen in the last reported quarter results of most of the stocks in the consumer staples sector including Tyson Foods Inc. (TSN), Sysco Corp. (SYY), United Natural Foods, Inc. (UNFI) and Supervalu Inc. (SVU), which have delivered improved performances on the back of a recovering economic scenario.
However, there are some companies like The Procter & Gamble Co. (PG), Mondelez International, Inc. (MDLZ), Molson Coors Brewing Company (TAP) and Kellogg Co. (K), which are still grappling with a challenging operating environment. These companies have been posting sluggish results due to lackluster top-line growth, lower unit volumes and currency headwinds. Hopefully, the year 2015 will prove to be better for these companies with a strong rebound in earnings. (Read:
Playing the Sector through ETFs
Given the defensive nature of this sector, it will outperform when equity markets are more bearish and underperform when bullish. The ups and downs of the sector due to the U.S. and global exposure can be played with a wide array of ETFs (see: all Consumer Staples ETFs here).
The ETFs can act as an excellent investment medium for those who wish to take a long-term exposure within the consumer staples sector.
For those interested in taking a look at consumer staples, we have highlighted a few ETFs tracking the industry, any of which could be an interesting pick:
Consumer Staples Select Sector SPDR ETF (XLP – ETF report):
Launched on Dec 16, 1998, XLP is an ETF that seeks investment results corresponding to the S&P Consumer Staples Select Sector Index. This fund consists of 41 stocks of companies that manufacture and sell a range of branded consumer packaged goods, with the top holdings being Procter & Gamble, The Coca-Cola Company (KO) and Wal-Mart Stores, Inc. (WMT). The fund's expense ratio is 0.16% and it pays out a dividend yield of 2.35%. XLP had about $10.2 billion in assets under management as of Feb 13, 2015
