August Consumer Staples Overview
In a top-down analysis of the consumer staples sector, we examine the performance of the Consumer Staples Select Sector SPDR® Fund ETF (NYSEARCA:XLP). Over the last 5 years, XLP has shown a gap in performance compared to the S&P 500, reaching an annualized return difference of 7.2 percentage points. This trend has been consistent since January 1999, with XLP underperforming the S&P 500 benchmark by 1.5 percentage points in annualized return.
The analysis focuses on industry metrics, including value, quality, and momentum. Food and household products are moderately undervalued in XLP, while the beverage industry is significantly undervalued based on 11-year averages.
The Fund's risk profile is lower than that of the S&P 500, as indicated by lower maximum drawdown and standard deviation of monthly return. However, the top 10 holdings in XLP represent 60.9% of asset value, with the three heaviest positions weighing between 8% and 10%. This concentration in top holdings may be a concern for some investors, and the Vanguard Consumer Staples ETF (VDC) could be a better-balanced alternative.
The scores Value Score ("VS") and Quality Score ("QS") are calculated based on the differences between the ratios and their baselines. Walmart Inc (WMT) is the largest holding in XLP, representing 9.76% of asset value. Tobacco has the lowest value and quality scores in XLP, making it the least compelling subsector from a fundamental point of view.
The next chart plots momentum data for the consumer staples sector, while the metrics for each industry are shown in a table. The beverage industry has recently seen a significant deterioration in quality score, partly offset by an improvement of value score. Conagra Brands, Inc., Post Holdings, Inc., Molson Coors Beverage Co., USANA Health Sciences, Inc., and Universal Corp. are part of the Dashboard List sent to Quantitative Risk & Value subscribers, indicating they are in the better half of their respective industries regarding valuation metrics.
The Quality Score ("QS") measures the difference between the quality ratios and their baselines, while the Value Score ("VS") measures the percentage of undervaluation or overvaluation relative to the baseline. The scores are in percentage points.
The metrics are calculated on trailing 12 months. Five fundamental ratios are calculated for each industry: Earnings Yield ("EY"), Sales Yield ("SY"), Free Cash Flow Yield ("FY"), Return on Equity ("ROE"), Gross Margin ("GM"). The scores are used to provide a comprehensive view of the industries within the consumer staples sector.
This article series aims to provide a thorough analysis of the consumer staples sector, helping investors make informed decisions about their investments in XLP and related ETFs.
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