There's nothing wrong with flying first class, but coach fares have looked more appealing lately. The ongoing old battle between utility and extravagance becomes clearer during tough economic times. Consumers have cut back on big ticket items like new cars and high priced vacations outside the U.S. As the shift toward utility purchasing grows, investors should consider how a basket of consumer goods could balance their portfolios.

Everyday Goods
The Consumer Staples SPDR ETF (AMEX:XLP) covers a wide range of companies that produce everyday goods like medicines, colas, household items and personal products. Most investors probably have used at least one product or service offered by one of XLP's consumer goods holdings. Procter & Gamble (NYSE:PG), Wal-Mart (NYSE:WMT) and Phillip Morris International (NYSE:PM) dominate more than one-third of the fund's portfolio. Therefore, it's time to take a look at a few of the companies that make up the XLP. (For more reading on ETFs, check out Five Ways to Find a Winning ETF.)

Goods For All Occasions
Whether it's the stuffy head fever reliever, NyQuil, the specially formulated baby clothing detergent, Dreft, or the snack attack satisfier, Pringles, Procter & Gamble is there to meet many consumer needs. However, the company is up only 4.5% over the past twelve months, while the SPDR S&P 500 Index ETF (AMEX:SPY) is up more than 20% over the same period. (For more, see A Guide To Investing In Consumer Staples)

Discount Leader
One-stop shop Wal-Mart is visited weekly by more than 100 million customers worldwide. Well-placed stores, fully-stocked shelves and low prices form a triple threat against competitors who wish to beat out the retail giant in the competition for consumers, who lately have focused spending more on food and household necessities, than extravagances.

Not Altria Anymore
Philip Morris International split away from its parent company Altria (NYSE:MO) in March of 2008. Philip Morris targets its tobacco products in the European Union, the Middle East, Africa, Asia and Latin America. Philip Morris International stock has slightly underperformed the S&P500 with a twelve month performance of 21.19%. (For more on socially responsible investing, check out A Prelude to Sinful Investing.)

Final Thoughts
It's safe to say that the business of consumer staples and investing in them is boring to some people. The demand for these products does not swing up and down and they don't exhibit the flashy characteristics of their close relative, the consumer cyclical.

They do, however, offer investors an opportunity to diversify into a sector that is easy to understand, has a relatively low beta and a low correlation to the overall market. So the next time you go to buy a razor when the stock market is in a tailspin, take a look at the company that makes that razor: it might be a good time to buy its stock.

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  2. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  3. Savings

    Become Your Own Financial Advisor

    If you have some financial know-how, you don’t have to hire someone to advise you on investments. This tutorial will help you set goals – and get started.
  4. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  5. Investing Basics

    6 Reasons Hedge Funds Underperform

    Understand the hedge fund industry and why it has grown exponentially since 1995. Learn about the top six reasons why the industry underperforms.
  6. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  7. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  8. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  9. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  10. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!