Analyzing a ‘Staple’ ETF

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

Sometimes, it is good to go back to basics.

While it can be glamorous to dream of the possibilities that the newest darling of Silicon Valley is cooking up to make our lives better and more efficient, we also cannot dismiss the consumer staples stocks, most of which belong to companies that manufacture the goods that people are almost certainly going to need right now.

The supply disruptions caused by the COVID-19 pandemic and the war in Ukraine, as well as the wave of panic buying of certain goods as a result of either faulty or misinterpreted information, should only serve to underscore the continued importance of consumer goods, even in the face of rapid technological advancement.

One exchange-traded fund (ETF) that is heavily involved in staples stocks is the First Trust Consumer Staples AlphaDEX Fund (NYSEARCA: FXG). This ETF tracks an index of large- and mid-cap consumer staples stocks from U.S. companies.

While the fund’s managers use a multi-factor selection and tiered equal-weighting method to build FXG’s portfolio, it is important to note that the goal of this fund is not market exposure. Rather, its goal is to attempt to pick winners in this market sector by employing quantitative analysis to separate the wheat from the chaff, so to speak, of the Russell 1000 index. As a result, the presence of some sector biases in this fund’s portfolio is not an impossibility.

Currently, the fund’s top holdings include Archer-Daniels-Midland Co. (NYSE: ADM), Bunge Limited (NYSE: BG), McKesson Corporation (NYSE: MCK), Corteva Inc. (NYSE: CTVA), Tyson Foods, Inc. (NYSE: TSN), Conagra Brands, Inc. (NYSE: CAG), J. M. Smucker Corp. (NYSE: SJM) and Kraft Heinz Company (NASDAQ: KHC). 

This fund’s performance has been outstanding when compared to the wider domestic equity benchmarks. As of March 8, FXG has been down 2.78% over the past month and up 3.84% over the past three months. It is currently down 1.66% year to date. That compares quite favorably to the S&P 500, which is down about 10.4% year to date. 

Chart courtesy of www.stockcharts.com

The fund has amassed $345.62 million in assets under management and has an expense ratio of 0.64%.

While FXG does provide an investor with a way to profit from consumer staples, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors should always conduct their due diligence and decide whether the fund is suitable for their investing goals.

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