Thanks in large part to strength in the U.S. dollar, consumer staples is a laggard group this year. The Consumer Staples Select Sector SPDR (NYSEARCA:XLP), the largest consumer defensive exchange-traded fund (ETF), highlights that disappointment.
For investors considering consumer mutual funds and related investments, there is some good news. Over the past several months, consumer defensive stocks have been showing signs of life. It is just one example, but XLP now resides less than 10% below its 52-week low.
If market volatility increases in the latter stages of 2018, investors may want to consider revisiting consumer mutual funds. Additionally, consumer mutual funds could catch a bid if investors renew their interest in income-focused sectors or view consumer staples as a value sector. Here are some consumer mutual funds to consider for conservative investors.
Consumer Mutual Funds:
Vanguard Consumer Staples Index Fund Admiral Shares (VCSAX)
Expense Ratio: 0.10%, or $10 annually per $10,000 invested
The rub with the Vanguard Consumer Staples Index Fund Admiral Shares (MUTF:VCSAX) is the lofty minimum investment of $100,000. This consumer mutual fund is an index fund, not an actively managed mutual fund, hence its affordable fee. VCSAX charges just 0.10% per year, making it cheaper than 92% of competing strategies, according to Vanguard data.
VCSAX is an ideal consumer mutual fund for investors that do not want to stock pick in the staples sector. The fund is home to 96 stocks with a median market value of $91.7 billion, indicating it tilts toward the largest consumer defensive names.
This consumer mutual fund features three members of the Dow Jones Industrial Average among its top 10 holdings — Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO) and Walmart (NYSE:WMT).
Consumer Mutual Funds:
Fidelity Select Consumer Staples Portfolio (FDFAX)
Expense Ratio: 0.76%
The Fidelity Select Consumer Staples Portfolio (MUTF:FDFAX) is pricey relative to passively managed consumer staples index funds and ETFs, but there is some good news on that front. Recently, Fidelity announced it is eliminating investment minimums on mutual funds as well as account fees and minimums.
This consumer mutual fund is slightly underweight beverage makers and househould products manufacturers relative to the S&P 500 Consumer Staples Index while being overweight consumer products and tobacco stocks compared to that benchmark. Tobacco exposure has been problematic for FDFAX because that has been one of the worse-performing consumer defensive segments for over a year.
This consumer mutual fund features Coca-Cola, Procter & Gamble and PepsiCo (NASDAQ:PEP) among its top 10 holdings.
Consumer Mutual Funds:
Putnam Global Consumer Fund (PGCOX)
Expens Ratio: Varies by share class
The Putnam Global Consumer Fund (MUTF:PGCOX) is a consumer mutual fund that is not confined to staples stocks. This actively managed fund mixes consumer defensive and consumer cyclical stocks, making it a consumer mutual fund to consider for investors that want some added spice in their consumer-related investors. For example, Amazon (NASDAQ:AMZN) is the largest holding in PGCOX at nearly 10% of the fund’s weight.
As its name implies, this consumer mutual fund is a global fund. Domestic equities represent slightly more than two-thirds of the fund’s weight, while the U.K. and the Netherlands combine for 14.43%. Underscoring its tilt toward consumer cyclical names, PGCOX’s top four industry weights are classified as consumer discretionary groups.
This consumer mutual fund has outperformed the MSCI World Consumer Discretionary & Consumer Staples Index over the long-term and it has a three-star Morningstar rating.
Consumer Mutual Funds:
Guggenheim Consumer Products (RYCIX)
Expense Ratio: 1.38%
In addition the standard annual fee, the Guggenheim Consumer Products (MUTF:RYCIX) features sales charges and investment minimums ($2,500 at the low end).
Many traditional consumer mutual funds are cap-weighted, but this Guggenheim fund uses a modified cap-weighted approach, which reduces the fund’s dependency on the sector’s largest names, while providing some exposure to potential upside in smaller stocks. While stocks such as Procter & Gamble and Coca-Cola are among RYCIX’s top holdings, that combines for less than 11% of the fund’s weight.
Food and beverage companies combine for almost 69% of the fund’s weight and RYCIX is underweight tobacco stocks relative to sector benchmarks.
Consumer Mutual Funds:
Fidelity Select Retail Portfolio (FSRPX)
Expense Ratio: 0.78%
The Fidelity Select Retail Portfolio (MUTF:FSRPX) is a highly-rated consumer cyclical index fund. As is the case with other Fidelity funds, this consumer mutual fund does not have a required minimum investment. This consumer mutual fund, which is more than three decades old, has easily outperformed the S&P 500 and baskets of consumer discretionary stocks over its lifespan.
Currently, FSRPX allocates over 40% of its weight to internet retailers, including Amazon and Netflix (NASDAQ:NFLX). While 25 industry groups are represented in this Fidelity fund, the only other allocation of note after internet retail is a 19.40% weight to home improvement retailers. FSRPX’s top 10 holdings are 72% of the portfolio and the fund’s active share is 26.50%, according to issuer data.
This consumer mutual fund is appropriate for investors looking to add growth stocks to their portfolios because FSRPX is classified as a growth fund in the Morningstar style box.
Consumer Mutual Funds:
ICON Consumer Staples Fund (ICLEX)
Expense Ratio: 1.50%
The ICON Consumer Staples Fund (MUTF:ICLEX) is a consumer mutual fund for the investors that likes a focused portfolio with highly active management. As of the end of the second quarter, the ICON fund held just 27 stocks and its turnover rate for the year ended Sept. 30, 2017 was 118%, according to issuer data.
High turnover rates can result in higher costs to investors, but if the fund’s managers are correct, moving in and out of various positions results in taking profits, ditching laggards before losses become too severe and potentially entering into new winners. There is something to that line of thinking as ICLEX has outperformed the S&P 1500 Consumer Staples Index by a better than 2-to-1 margin since 2009.
“The Fund uses a quantitative methodology to identify securities ICON believes are underpriced relative to value,” according to ICON.
Consumer Mutual Funds:
T. Rowe Price Global Consumer Fund (PGLOX)
Expense Ratio: 1.05%
The T. Rowe Price Global Consumer Fund (MUTF:PGLOX) is an active consumer mutual fund that includes both discretionary and staples names.
“The advisor has flexibility in allocating investments between the consumer discretionary and consumer staple sectors and seeks to identify the best risk-adjusted opportunities for the fund based on market conditions and consumer sentiment,” according to the issuer.
Active management is a benefit with this consumer mutual fund because consumer discretionary and staples stocks usually don’t offer simultaneous out-performance. Staples stocks usually outperform during the early innings of a business cycle while discretionary stocks gain momentum as investors’ confidence grows as broader economic conditions improve.
With that in mind, PGLOX currently has a 56% weight to the discretionary sector compared to 35.3% in staples.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
