Consumer staples funds can be an ideal addition to a portfolio during the late phase of a market cycle.
When economic conditions become increasingly uncertain and markets are less stable, it is wise to consider investments that can inject more certainty and stability into your investment mix.
During the late phase of a market cycle, economic growth begins to level off and stock price fluctuations become more pronounced as bulls and bears duke it out in the market arena. Arguably, we are beginning to see signs of these late-phase conditions now.
This is the kind of environment where a prudent investor won’t make absolute and drastic timing moves and shift all of their investment assets into cash but they may want to consider ways to capture as much of the upside remaining in stocks . . . while minimizing the downside that may materialize sooner rather than later.
Therefore, consumer staples, also known as consumer defensive stocks, may be a good idea now. These are companies that provide products or services that consumers buy regardless of the economic environment.
3 Best Consumer Staples Funds to Buy Now
When buying sector funds, it is often the best idea to find low-cost, broadly diversified portfolios. This translates into a search for well-managed mutual funds with low expense ratios and passively-managed ETFs like these:
- Fidelity Select Consumer Staples (FDFAX) is not just another actively-managed mutual fund that invests in consumer staples stocks. It’s one of the best consumer staples funds you can buy. One attractive distinction is that fund’s lead manager, Robert Lee, has been at the helm for over 10 years and the performance rank for 10-year annualized returns places him and FDFAX ahead of 99% of other consumer staples funds in the period. The year-to-date, 1-year, 3-year and 5-year returns also rank in the top quartile. The expense ratio for FDFAX is low at 0.79% and the minimum initial investment is $2,500.
- Vanguard Consumer Staples (VDC) is an outstanding ETF that tracks the MSCI US Investable Market Consumer Staples 25/50 Index, which offers exposure to mega-cap household names whose products consumers generally continue to buy regardless of the economic climate. The portfolio is made up of 100% large U.S. food and staples retailers, household products companies, beverage companies, packaged foods and meats companies, and tobacco firms. The expense ratio is a rock-bottom 0.12%.
- Consumer Staples Select Sector SPDRS (XLP) has been around for more than 16 years, making it one of the first funds to specialize in consumer staples stock investing. An attractive distinction, in comparison to other consumer staples funds, is XLP’s low relative volatility, which makes it a solid defensive play. Back in 2007, when stocks were in their last late-phase cycle, XLP had a solid gain of 12.4% and when the bottom fell out of stock prices in 2008, XLP had a -14.8% decline, compared to -37.0% for the S&P 500 Index. XLP also boasts a low 0.16% expense ratio.
In summary, the best consumer staples funds can provide the kind of end-of-bull to beginning-of-bear performance investors can use for a diversified and defensive portfolio now.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.
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