Going Defensive? Buy Consumer Staples!

Markets have rallied strong in the build-up to the ECB meeting last week. However, Mario Draghi disappointed markets as he did not announce any new form of Quantitative Easing.

It’s normal that markets correct post a disappointing announcement, more and more so that there was a strong build-up to the meeting. Moreover, markets are also worried of a potential rate hike in the US which would be a threat to global economic growth. Probability of a rate hike in the US in December is not at 60%.

However it is also true (even after the build-up), that the equity markets continue to remain one of the best alternative for investors given the mediocre returns from other asset classes.

For those who want to go defensive but still participate in the equity markets, it would be a good idea for investors to look at defensive stocks in times of uncertainty in order to reduce the negative impact on their portfolio should we see a short term sell-off in the markets.

What are 'Consumer Staples'

Consumer staples are essential products, such as food, beverages, tobacco and household items. Consumer staples are goods that people are unable or unwilling to cut out of their budgets regardless of their financial situation. Consumer staples are considered to be non-cyclical, meaning that they are always in demand, no matter how well the economy is performing. People tend to demand consumer staples at a relatively constant level, regardless of their price.

Going Defensive via an ETF

The iShares Global Consumer Staples ETF is an exchange-traded fund incorporated in the USA. The Fund seeks results that correspond generally to the price and yield performance of the S&P Global Consumer Staples.

The ETF is up 5% YTD compares to the S&P500 Index which 4%.

The Top 5 Performers of the iShares Global Consumer Staples ETF

CENCOSUD SA –ADR (38% up YTD)

Cencosud SA is a multi-brand retailer in South America. The Company operates through a number of formats, including supermarkets, home improvement stores, shopping centers and department stores. Cencosud is headquartered in Chile and has operations in Chile, Argentina, Brazil, Colombia and Peru.

TYSON FOODS INC-CL A (36% up YTD)

Tyson Foods, Inc. produces, distributes, and markets chicken, beef, pork, prepared foods, and related allied products. The Company's products are marketed and sold to national and regional grocery retailers, regional grocery wholesalers, meat distributors, warehouse club stores, military commissaries, and industrial food processing companies.

AMBEV SA – ADR (34% up YTD)

Ambev SA primary business is the production and distribution of beer. The Company also operates in the soft drinks and non-alcoholic and non-carbonated businesses with proprietary brands. Ambev has exclusive bottler and distributor rights for Pepsi CSD products in Brazil.

SAPUTO INC (31% up YTD)

Saputo Inc. manufactures dairy and grocery products. The Company manufactures Italian cheeses, European cheeses, and North American cheeses. Saputo also operates a distribution network through which it markets a variety of imported cheeses and non-dairy products to complement its cheese offerings. The Company also produces and distributes snack cakes, cookies, breads, and soups.

WM MORRISON SUPERMARKETS (30% up YTD)

Wm Morrison Supermarkets PLC retails groceries through a chain of supermarkets and an online home delivery service in England. The Company offers food and groceries, much of which it sources and processes through fully own manufacturing facilities.