Vanguard Consumer Staples ETF (NYSEARCA:VDC) is an exchange traded fund (ETF) that uses the MSCI US Investable Market Consumer Staples 20/50 Index as its benchmark.
The index includes large, medium and small companies that cover an array of sectors including, food, beverages, tobacco, household goods and personal products.
Basically, if you look at the things that comprise your shopping list on a weekly basis, most of them are consumer staples.
The Case for Consumer Staples
During bullish times, consumer staples stocks — and the sector in general — don’t get a lot of love. The sector is not known for its dynamic growth quarter-to-quarter.
These companies usually have tight margins on relatively low-cost products. (This is the exact opposite of most consumer electronics companies or pharmaceutical companies.)
Because of consumer staples’ ‘steady-Eddie’-type business models, many of these stocks kick off a dividend to keep investors happy. VDC passes that along as a respectable 2.65% dividend.
Skittishness over interest rates drove the market down yesterday. And that same skittishness over interest rates is about to give VDC and its constituent holdings major boosts.
If the new Federal Reserve chairman raises rates too fast, it will kill off growth. If he doesn’t raise fast enough, inflation will rise swiftly and put any economic recovery in jeopardy.
Bonds are a potential safety play for money seeking less volatile sectors. But when money wants to stay in stocks during increased market volatility, smart money goes to consumer staples.
That is when VDC will shine.
VDC Is a Great Play on the Consumer Staples Sector
VDC’s top 5 holdings (as of 1/31/2018) in order of exposure are: Procter & Gamble Co (NYSE: PG), The Coca-Cola Co (NYSE: KO), PepsiCo, Inc. (NYSE: PEP), Philip Morris International Inc (NYSE: PM) and Walmart Inc (NYSE: WMT).
VDC is basically a collection of the biggest blue chip consumer stocks in the U.S. — as well as some smaller ones. Its 10 largest holdings make up 61% of the portfolio. So its small- and mid-cap selections aren’t delivering the kind of power that the top 10 deliver.
And given the volatility in the markets, VDC is place of calm. In the coming days and quarters, this will make it a very attractive growth alternative — so buy in now.
Also, as part of the Vanguard fund family, VDC has extremely low expenses. That means more of your money is making you money, rather than going to the fund company and its managers. Its expense ratio is 0.1%, which lower than 92% of similar funds.
In recent quarters, many consumer staples stocks have fallen out of favor.
But given the rise in volatility and the confusion that comes with the end of quantitative easing, there is a lot of opportunity here for VDC. Especially at current prices.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.