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Consumer staples see constant demand
even when the economy takes a dive.
After all, people always need shampoo,
pet food, and laundry detergent no
matter what the economic outlook is. That's why the consumer staples
sector thrives even when a recession
looms. What were the sector's average
gains during the previous three
decelerating economic cycles? A.)
+13%
B.) +27%
C.) +48%
D.) +79%
E.) +95% |
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Published:
December 14, 2007
The
correct answer is 
(D.) +79%
Several years ago, Merrill Lynch
(NYSE: MER) completed a study that
found the consumer staples sector
delivered average gains of +79%
during the previous three
decelerating economic cycles --
versus a modest +16% return for the
consumer discretionary group. With
the U.S. economy potentially on the
brink of another slowdown, this
sector is looking attractive to many
investors.
Essentially, all products fall into
one of two broad categories: those
we want and those we need. Consumer
staples are those products that
people need. So it stands to reason
that when consumers begin scaling
back their spending, it's the
"wants" that have to go.
After all, it makes sense that when
cash is in short supply, someone
might think twice about shelling out
several hundred dollars for a fancy
new digital camera -- but they won't
hesitate to pick up everyday staples
like milk, toothpaste, or laundry
detergent. As a result, the
companies that sell these products
tend to be somewhat insulated from
economic downturns and can make for
reliable defensive investments
during turbulent times. That's
precisely why during the brutal bear
market of 2000 to 2003, the consumer
staples group not only held its
ground -- it actually delivered a
gain.
As you might expect, none of this is
lost on Wall Street, where investors
often flock to this sector during
times of uncertainty. Thanks to
steady demand from consumers around
the globe, companies like Procter &
Gamble (NYSE: PG) are able to churn
out consistent cash flows and lift
dividend payments through the good
times and the bad. But those looking
to profit from some exposure to the
consumer staples group might want to
start with one of the several
closed-end or exchange-traded funds
that focus on consumer staples.
After all, should an accounting
scandal or some other calamity hit a
consumer staples company you are
invested in, it could do serious
damage to your portfolio. However,
the effect of that calamity on a
fund holding dozens of firms would
be more muted.
So with the U.S. economy showing
sings of faltering, Editor Nathan
Slaughter of StreetAuthority's
ETF Authority
newsletter thought it would be an
opportune time to look into this
steady sector. In his latest issue,
Nathan offers an in-depth look at
the consumer staples sector as well
as a list of consumer staples funds
positioned to explode during
flagging economic conditions. Nathan
also provides sharp analyses of two
of his favorite funds, one of which
focuses on consumer staples
companies the world over -- offering
invaluable diversification and
protection from the rocky U.S.
markets. To learn the name of this
fund and to learn more about The
ETF Authority
newsletter, please
visit this link.
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