Special 10-Part Series on the Premier Sector Funds: ‘Consuming’ a Defensive ETF

Sometimes, when fighting an opponent in the ring, or when playing the game of life, playing defense is good.

Now, given what I say frequently in The Deep Woods e-letter and in my trading alerts about seizing the day and living a life of action to its fullest, that may seem contradictory.

But, at least with regard to investing in consumer discretionary stocks, playing defense does not mean your portfolio has to suffer — languishing behind while others scoop up formidable profits. Indeed, according to Seeking Alpha, during times of economic turmoil, consumer discretionary stocks suffer less economic punishment than other stocks. After all, even when times are tough, a man has to eat and take care of himself.

This seemingly simple fact helps maintain a consistent and reliable cash flow into the companies that make up this exchange-traded fund’s (ETF) portfolio and allows for both consistent and reliable dividend payouts — check out the two consumer discretionary stocks in my Successful Investing Prime Movers Portfolio if you want proof — and also allows for continued reinvestment in the company.

Indeed, if investing in the latest and greatest technology stocks is the hare, consumer discretionary stocks are the tortoise. (And we all know who eventually won, right?)

The Consumer Staples Select Sector SPDR Fund (NYSEARCA: XLP) is an ETF which aims to produce investment results that hopefully reflect the performance of the Consumer Staples Select Sector Index. The stocks in the XLP basket are selected on the basis of industry classification and feature companies in the consumer staples distribution and retail, household food and beverage and personal care products sectors.

Exclusive Three Defense Investments with Potential to Outperform

Top holdings in this fund include Costco Wholesale Corp. (NASDAQ: COST), Procter and Gamble Co. (NYSE: PG), Walmart Inc. (NYSE: WMT), Coca-Cola Co. (NYSE: KO), PepsiCo (NASDAQ: PEP), Philip Morris International (NYSE: PM), Colgate Palmolive Co. (NYSE: CL) and Altria Group Inc. (NYSE: MO).

As of Dec. 23, XLP has been down 4.29% over the past month and down 4.29% for the past three months. It is currently up 12.63% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $16 million in assets under management and has an expense ratio of 0.09%.

While XLP allows a prospective investor entry into the world of consumer discretionary stocks, such a fund may not be suitable for all portfolios. So, it’s important to carefully consider the risks and potential returns before making any investment decisions.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.