As part of a diversified portfolio, investors typically purchase basic commodity stocks for consumer companies that manufacture or sell a wide range of goods, from food and drink to household and personal hygiene products.
There is also a wide variety of US-based basic consumer goods companies whose shares are publicly traded. Alternatively, an exchange-traded fund (ETF) would allow market participants to invest in a basket of such shares. Therefore, today I would like to discuss two such ETFs for consumer staples that may be suitable for long term portfolios.
Earlier in June, the National Bureau of Economic Research announced that the US is officially in recession. A recession is generally defined as two quarters of the decline in gross domestic product (GDP). If an economy shrinks more than six months, it will be in recession.
Consumer stocks tend to fare better during recessions. Consumers generally cannot cut their budgets much by not buying these products, which are generally essential to basic life. In recent months, demand for non-essential products worldwide has declined relatively speaking.
On the other hand, demand for consumer goods remains robust. For example, many supermarket chains, both in the United States and elsewhere, have seen a significant upswing since the onset of the coronavirus pandemic.
Such non-cyclical stocks can help investors protect their capital while still achieving an acceptable return, especially in times of economic uncertainty. If they also deliver robust dividends, this is the icing on the cake. Receiving regular dividends gives investors a constant flow of passive income.
With all that, let's take a closer look at today's ETFs.
1-Vanguard Consumer Staples Index Fund ETF
Current price: $ 158.60
52-week range: $ 120.70- $ 164.90
Dividend Yield: 2.56%
Expense Ratio: 0.10% per year, or $ 10 on an investment of $ 10,000.
The Vanguard Consumer Staples Index Fund ETF (NYSE 🙂 seeks to track the investment performance of the MSCI US IMI (LON 🙂 Consumer Staples 25/50 index, which is a benchmark. of large, mid and small cap US equities in the consumer goods sector.
VDC has 94 companies. The main sectors (by weight) are: household products, soft drinks, packaged food and meat products, hypermarkets and super centers. In total, these four sectors make up about 76% of the fund.
The top ten positions make up 64.50% of total net assets, nearly $ 6 billion. VDC's top five companies include Procter & Gamble (NYSE :), Pepsi (NASDAQ: PEP), Coca-Cola (NYSE :), Walmart (NYSE :), and Philip Morris (NYSE: NYSE :).
The Vanguard Consumer Staples Index Fund ETF
Year-to-date (YTD), VDC declines by approximately 1.6%. However, that number only tells half the story. In March 2020, the fund bottomed out at 52 weeks at $ 120.70. Since then, VDC has increased by about 30%. In other words, an investment of $ 1,000 in VDC in early spring would now be worth about $ 1,300.
Finally, the return on the YTD does not take into account the dividend yield. In the case of short-term profit-taking, especially during the current busy US profit season, the price is likely to find support around the $ 150 level.
2. iShares Global Consumer Staples ETF
Current price: $ 54.42
52-week range: $ 41.93- $ 56.50
Dividend Yield: 3.28%
Expense Ratio: 0.46% per year, or $ 46 on an investment of $ 10,000.
The iShares Global Consumer Staples ETF (NYSE 🙂 allocates nearly 52% of its weight to US consumer base funds. Companies located in ten other countries, including the UK, Switzerland and Japan, are also part of the fund.
KXI, which has 93 holdings, tracks the S&P Global 1200 Consumer Staples Sector Capped index. The three sectors in the fund are: food, drink and tobacco (52.96%), household and personal products (27.85%) and retail food and staples (18.52%). Cash and derivative products represent 0.67%.
iShares Global Consumer Staples ETF
The fund's top five companies are Nestle (OTC :), Procter & Gamble, Walmart, Pepsi and Coca-Cola. Other non-U.S. Companies that Investing.com readers are familiar with include UK-listed beverage manufacturer Diageo (NYSE :), French cosmetics and fashion company L & # 39; Oreal (OTC 🙂 and the Anglo- Dutch manufacturer of household goods Unilever (NYSE 🙂
Year-to-date, the KXI decreased by approximately 1.9%. However, similar to VDC, KXI has also risen about 29% since late March.
Demand for consumer staples is likely to remain constant, even if the US or global economy sputters. While these funds may see short-term gains, the industry is likely to do well in the coming months. Basic Consumer ETFs can provide market participants with a diversified investment exposure to a range of companies likely to be leaders in their respective sectors.