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.
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)
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.)
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.