RSSGetting Defensive With ETFs In Volatile Times
By Tom Lydon | October 02, 2008 | 5:22 PM | 0 Comments
As the markets get crazy, investors react in all kinds of ways, depending on their style and risk tolerance. Some stay in, preferring the buy-and-hold approach. Others implemented their stop-loss points ages ago. Others get in, but make defensive plays, one of which is consumer staples.
The Consumer Staples Select Sector SPDR (NYSE: XLP) offers investors a chance to capitalize on the idea that investors aren't going to skimp on those everyday necessities - soap, laundry detergent, food basics - no matter how rough the economy happens to get.
The basic idea is the consumer staples companies are likely to be less adversely affected in a downturn than other areas - say, luxury goods. Demand for products that help us make a daily living aren't going to be cut out (at least, we hope everyone continues to clean their clothes and use soap when they shower).
One of the top holdings in the fund is Wal-Mart (NYSE: WMT), one of the few retailers that has managed to stand tall in the economic crisis. The company is attractive to shoppers who are looking for both low-prices and confining themselves to the basics as oil and gas prices drain their wallets. Wal-Mart is 11% of XLP.
Another top holding is Kraft (NYSE: KFT), at 3.9%. Kraft knows, as anyone else does, that consumers are scaling back - that's why they've teamed up with Campbell's Soup to push that old classic: grilled cheese and soup. It's an inexpensive but filling option for those with empty wallets.
Year-to-date, the fund is down 3.1%.
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