Personally, I was looking for more exposure to the consumer staple sector as a dividend investor, as personally, I felt I didn't have enough exposure to this sector through my individual stocks and ETFs. In my search, I couldn't find many ETFs in Europe that would track this sector and meet my criteria and at one point I came across Xtrackers MSCI USA Consumer Staples UCITS ETF. I have the majority of my stock portfolio in ETFs I find them a passive way to invest money wisely and they don’t require much maintenance in terms of keeping track of stocks etc. For me, it is more of a set-and-forget approach instead of keeping track of all companies in a portfolio.
An exchange-traded fund is represented as a stock in the stock market so by holding this specific stock you are holding a basket of stocks that correspond to an index (portfolio benchmark) that it is tracking.
This is a Dividend ETF and its main goal is to track the consumer staples sector from the United States, at the time of writing is paying out a dividend yield of 2.7% which is decent for this sector.
The current benchmark/portfolio
The index Index aims to reflect the performance of the large and mid-cap companies from the USA part of the Consumer Staples sector as classified by GICS, Weighted by free-float adjusted market capitalization and reviewed on a quarterly basis. It would be good to investigate the benchmark in more detail and the methodology in more detail on their site.
The ETF currently holds about 33 stocks which provides more than plenty of diversification in this sector. When it comes to geographical diversification, this ETF provides exposure to US stocks, which seems to be very limited at first but historically the United States has performed very well. One thing to note is while the exposure is limited to only US companies, many of these large companies have exposure and revenue around the world.
However, it cannot be denied that this ETF doesn't provide any exposure to companies outside the united states and it is a disadvantage.
When looking at ETFs I find it crucial to have a look at the top 10 holdings to get a good feeling of the ETF and to see if it fits my profile and to see if these would be companies I would invest myself in individually. In this case, the top 10 holdings are representing more than 70% of the portfolio.
The top 10 holdings:
Procter & Gamble Co. - 15%
Coca-Cola Co. - 11%
Pepsico Inc. - 11%
Costco Wholesale Corp. - 10%
Walmart Inc. - 10%
Philip Morris Intl. Inc. - 6%
Mondelez Intl. Inc. - 4%
Altria Group Inc. - 3%
Colgate-Palmolive Co. - 3%
Archer Daniels Midland Co - 2%
Conclusion:
Overall, this ETF has 33 holdings, which is not bad considering it is a sector ETF, with that being said, this ETF would play a smaller part in my portfolio, and based on its holdings and exposure I wouldn't hold this ETF as a sole holding in my portfolio, which I understand as that is not the intention. I like the exposure to these companies, as these staple companies I would have invested in and the exposure to the so-called sin stocks is not too high, again the fact that top 10 holdings make more than 70% of the portfolio is not a big deal for me based on my allocation and goals.
Expense Ratio
When it comes to the expense ratio, the lower the better and I would generally like to see an expense ratio below 0.5%. Overall in Europe, I find the ETFs available a bit more expensive than what is available in the United States. In this case, this ETF has an expense ratio of 0.12% Which is very low and therefore very good.
Performance
Since this is more of a dividend-oriented ETF I want to look at both the capital appreciation, as well as the dividend growth over the last couple of years. Purely looking at capital appreciation over the last 5 years this fund has increased by over 43%. When it comes to dividend payout, In 2019 this fund was paying out 0.75 Euro and this last year it paid out 1.21 Euro. In the last few years, this means that we had an increase of 61% compared to 2019, which is about more than a 12% compound annual growth rate. US companies generally have very good dividend growth track records.
Based on this information, I conclude that there was a good appreciation in the stock price, however, the income increases are quite interesting as well based on my own estimates and calculation. One thing to note relating to capital appreciation consumer staples has been performing quite well the last couple of years due to many global situations which explains the performance, relating to the dividend growth it is to be noted that last august there was an extraordinary extra payout which resulted in this extraordinary increase, so there is a chance that this increase cannot be sustained. However, still, this ETF has performed very well and I am confident it can still continue to grow in the future albeit not in the same manner as we have seen the past few years.
Pros
I find that there is quite some nice diversification in this fund in terms of allocation and amount of stocks.
Secondly, since it is an ETF I find it a good way to set and forget and is quite passive in nature.
Thirdly, it has historically seen good capital appreciation and dividend growth
Fourthly, the top holdings are companies that I know and would like to have as part of my portfolio overall.
Finally, it has a low expense ratio for an ETF available in Europe
Cons
This is a sector ETF, which means it doesn't have many holdings, and personally wouldn't use it as a single ETF in a portfolio, however, this is not the purpose either.
Secondly, this is a US ETF and therefore has no exposure to companies around the world
Thirdly, as with all funds, it is not possible to choose the individual holdings so basically whether you like a stock or not in a fund, you are holding that stock indirectly, basically you are buying the winners and losers and trying to achieve a market return based on the index.
Conclusion
I currently don't hold this ETF in my portfolio as I have opted for a worldwide version of this ETF, more as a supplementary position.
Disclaimer: I am not a financial advisor, this blog is centered around my opinion and should not be viewed as legal, professional, or financial advice.
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