Countering Inflation! Choosing A Consumer Staples ETF

You’ve probably observed price increases across many products in Singapore. This is due to Core inflation rising at an alarming rate due to pandemic-induced supply-chain issues. Furthermore, these issues are unlikely to be resolved anytime soon.

But it’s not just Singapore that is feeling the pinch. The USA is also facing an unprecedented rise in inflation, with its inflation rate reaching 7.9% last month!

In such a situation, one might consider stocks in the consumer staples sector, as they tend to have multiple benefits which can help to preserve and grow your capital in the long term.

Broadly speaking, Consumer Staples are companies which produce or deliver essential goods and services which people can’t do without. These products tend to enjoy persistent demand from consumers, and may even outperform other stocks during a downturn.

Buying The Whole Sector

If you’re keen on investing in consumer staples, do consider buying a dedicated ETF which gives you exposure to a basket of such stocks. This will provide diversification and allow you to benefit when these stocks go up.

Some ETFs which one can consider would be the Vanguard Consumer Staples ETF (NYSE:VDC), and the iShares Global Consumer Staples ETF (NYSE:KXI). Both are low-cost ETFs which are commonly traded on the US markets.

Some Of The Holdings In Both ETFs

These ETFs contain nearly 100 different stocks, ranging from Beverages, to Food Staples and Personal Products. Pretty extensive coverage across various industries in the consumer sector.

Past performance has been good. VDC, which was introduced in 2004, has returned 10.24% on average per year to date. KXI was launched in 2006, and has returned 8.76% per year. It’s also the more expensive fund, at a expense ratio of 0.43%.

Looking at the Portfolio as a whole, the average PE ratio for the VDC and KXI is at 24x and 21x respectively. Both ETFs are also skewed towards US companies, with these entities making up more than 50% of it’s portfolio.

This means that the portfolio is highly dependent on the domestic demand of the US, which is mostly positive.

Sailing A Stable Ship

ETFs like these allow investors to spread out their risk, while also being able to focus their funds on a specific sector. With it’s relatively low Beta (Price volatility metric), investor are also somewhat shielded from large price declines.

While it isn’t as exciting a sector as Technology or Fintech, there’s no denying it’s defensiveness. Especially in turbulent times like this.

If you’re interested in more information, check out these sites;

Vanguard Consumer Staples ETF Site

iShares Global Consumer Staples ETF

Casey H

Leave a Reply

Next Post

PropertyGuru (NYSE:PGRU) : The Future Of Property Transactions?

Sun Mar 20 , 2022
PropertyGuru has recently made its debut on the NYSE following its merger with the Bridgetown 2 SPAC. Singaporeans would be familiar with this PropTech company […]