{"id":2747,"date":"2021-07-20T15:24:11","date_gmt":"2021-07-20T15:24:11","guid":{"rendered":"http:\/\/blog.valuengine.com\/?p=2747"},"modified":"2021-07-20T15:27:25","modified_gmt":"2021-07-20T15:27:25","slug":"how-does-def-stack-up-against-consumer-staples-etfs","status":"publish","type":"post","link":"http:\/\/blog.valuengine.com\/index.php\/how-does-def-stack-up-against-consumer-staples-etfs\/","title":{"rendered":"How does DEF stack up against Consumer Staples ETFs?"},"content":{"rendered":"

About a month ago, this blog profiled the defensive qualities of the three largest ETFs representing the US Consumer Staples Sector.\u00a0 One of our readers asked a logical question.\u00a0 How did DEF, the Invesco Defensive Equity ETF, stack up against the sector ETFs?\u00a0 After all, its objective of its rules-based methodology is to select companies that potentially have superior risk-return profiles during periods of stock market weakness while still offering the potential for gains during periods of market strength.<\/span><\/p>\n

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Here is the brief recap of the original article. Our analysis determined that FSTA, Fidelity MSCI Consumer Staples Index ETF was the best current purchase for consumers looking to exchange some upside exposure for a bit of downside resistance.\u00a0 The others also earned Buy ratings.\u00a0 VDC, the Vanguard Consumer Staples ETF was nearly identical but had a fee 2 basis points higher.\u00a0 This is a tiny distinction, but it was the tie-breaker.\u00a0 The oldest, XLP, the Consumer Staples Select Sector SPDR, had the less desirable valuation statistics other than yield and the highest, but not exorbitantly higher fee.\u00a0 What XLP did bring to the table, analytically was the longest history so we could demonstrate how well the sector held up in historical S&P downturns.\u00a0\u00a0<\/span><\/p>\n

Let\u2019s see how XLP stacks up.\u00a0\u00a0<\/span><\/p>\n

The following table provides much of the pertinent information as of June 30, 2021 or July 2, 2021, basically Midyear.\u00a0 VOO, the Vanguard S&P 500 ETF, is used for benchmarking.<\/span><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
<\/td>\nDEF<\/b><\/td>\nFSTA<\/b><\/td>\nVDC<\/b><\/td>\nXLP<\/b><\/td>\nVOO<\/b><\/td>\n<\/tr>\n
ValuEngine Rating<\/span><\/td>\n2<\/span><\/td>\n2<\/span><\/td>\n2<\/span><\/td>\n2<\/span><\/td>\n3<\/span><\/td>\n<\/tr>\n
1-Yr Forecast Return<\/span><\/td>\n-5.2%<\/span><\/td>\n-5.1%<\/span><\/td>\n-5.1%<\/span><\/td>\n-5.2%<\/span><\/td>\n-4.2%<\/span><\/td>\n<\/tr>\n
1-Yr Historical Return\u00a0<\/span><\/td>\n28.49%<\/b><\/td>\n25.30%<\/span><\/td>\n25.07%<\/span><\/td>\n22.73%<\/span><\/td>\n39.03%<\/span><\/td>\n<\/tr>\n
3-Yr Historical Return<\/span><\/td>\n12.99%<\/b><\/td>\n12.91%<\/span><\/td>\n12.31%<\/span><\/td>\n10.88%<\/span><\/td>\n18.62%<\/span><\/td>\n<\/tr>\n
5-Yr Historical Return<\/span><\/td>\n10.39%<\/b><\/td>\n7.25%<\/span><\/td>\n5.13%<\/span><\/td>\n4.76%<\/span><\/td>\n17.60%<\/span><\/td>\n<\/tr>\n
10-Yr Historical Return<\/span><\/td>\n11.30%<\/span><\/td>\nN\/A<\/span><\/td>\n11.73%<\/b><\/td>\n11.57%<\/span><\/td>\n14.80%<\/span><\/td>\n<\/tr>\n
Volatility<\/span><\/td>\n14.2%<\/span><\/td>\n12.8%<\/b><\/td>\n12.8%<\/b><\/td>\n12.9%<\/span><\/td>\n15.1%<\/span><\/td>\n<\/tr>\n
Sharpe Ratio\u00a0<\/span><\/td>\n0.73<\/b><\/td>\n0.42<\/span><\/td>\n0.41<\/span><\/td>\n0.37<\/span><\/td>\n0.95<\/span><\/td>\n<\/tr>\n
# of Stocks<\/span><\/td>\n102<\/b><\/td>\n98<\/span><\/td>\n96<\/span><\/td>\n32<\/span><\/td>\n500<\/span><\/td>\n<\/tr>\n
% Labeled<\/span><\/p>\n

Undervalued by VE<\/span><\/td>\n

23%<\/span><\/td>\n56%<\/b><\/td>\n56%<\/b><\/td>\n39%<\/span><\/td>\n32%<\/span><\/td>\n<\/tr>\n
VE Beta<\/span><\/td>\n0.89<\/span><\/td>\n0.65<\/b><\/td>\n0.65<\/b><\/td>\n0.64<\/span><\/td>\n1.00<\/span><\/td>\n<\/tr>\n
VE Alpha<\/span><\/td>\n-0.05<\/span><\/td>\n-0.03<\/b><\/td>\n-0.03<\/b><\/td>\n-0.05<\/span><\/td>\n0.00<\/span><\/td>\n<\/tr>\n
P\/B Ratio<\/span><\/td>\n4.1x<\/b><\/td>\n5.1x<\/span><\/td>\n5.1x<\/span><\/td>\n6.2x<\/span><\/td>\n4.2x<\/span><\/td>\n<\/tr>\n
Div. Yield<\/span><\/td>\n1.0%<\/span><\/td>\n2.3%<\/span><\/td>\n2.4%<\/span><\/td>\n2.5%<\/b><\/td>\n1.5%<\/span><\/td>\n<\/tr>\n
Expense Ratio<\/span><\/td>\n0.53%<\/span><\/td>\n0.08<\/b><\/td>\n0.10%<\/span><\/td>\n0.12%<\/span><\/td>\n0.03%<\/span><\/td>\n<\/tr>\n
Index Provider<\/span><\/td>\nInvesco<\/span><\/td>\nMSCI<\/span><\/td>\nMSCI<\/span><\/td>\nS&P Dow Jones Indexes<\/span><\/td>\nS&P Dow Jones\u00a0<\/span><\/p>\n

Indexes<\/span><\/td>\n<\/tr>\n

Index<\/span><\/p>\n

Scheme<\/span><\/td>\n

Equal Weighting<\/span><\/td>\nMkt. Cap Weighting<\/span><\/td>\nMkt. Cap Weighting<\/span><\/td>\nMkt. Cap Weighting<\/span><\/td>\nMkt. Cap Weighting<\/span><\/td>\n<\/tr>\n
ETF Sponsor<\/span><\/td>\nInvesco<\/span><\/td>\nFidelity<\/span><\/td>\nVanguard<\/span><\/td>\nSSgA<\/span><\/td>\nVanguard<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

All ValuEngine ETF reports updated and available:\u00a0Click HERE<\/a><\/strong><\/span><\/p>\n


\nA few immediate observations we can make:<\/span><\/p>\n

    \n
  1. In the month since the Consumer Staples Sector ETF report, all 3 ETFs profiled went from an above-average rating of 4 to a below-average rating of 2<\/span><\/li>\n
  2. The dividend yields of FSTA, VDC and XLP are all considerably higher than VOO, the S&P 500 ETF.\u00a0 DEF has a considerably lower dividend yield.<\/span><\/li>\n
  3. More than half of the stocks in FSTA and VDC are considered undervalued by the ValuEngine Model as compared with less than 1\/3 in VOO. But DEF has even a lower percentage of stocks undervalued by ValuEngine, just 23%.<\/span><\/li>\n
  4. The historic volatility of DEF while still lower than that of VOO is considerably higher than for FSTA, VDC and XLP.<\/span><\/li>\n
  5. Similarly, DEF has a lower Beta than VOO but a higher Beta than all three Sector ETFs<\/span><\/li>\n
  6. On the other hand, all 3 Sector ETFs were more overvalued than VOO on a Price\/Book ratio basis while DEF has an even lower P\/B ratio than VOO, albeit just slightly lower.<\/span><\/li>\n
  7. Also, the Sharpe Ratio of DEF is superior to those of FSTA, VDC and XLP, indicating that the added volatility has translated into added returns.<\/span><\/li>\n
  8. Consistent with more robust performance during positive periods for the S&P 500, DEF outperformed all 3 Consumer Staples Sector ETFs for the past 1- 3- and 5-Year periods but underperformed in the 10-year period.<\/span><\/li>\n
  9. By definition, DEF is much more diversified by Sector that the Consumer Staples Sector ETFs.\u00a0 In fact, at 8.7%, Consumer Staples was only the fifth largest sector in DEF.\u00a0 The top four were: Medical (19.4%); Finance (14.9%); Technology (13.0%); and Retail (12.2%).<\/span><\/li>\n
  10. Perhaps even a greater difference in the portfolio characteristics is derived from the difference between DEF\u2019s Equal-Weighting Scheme and the traditional market-cap weighted scheme used by the other four ETFs.\u00a0\u00a0<\/span><\/li>\n
  11. The expense ratio of DEF is more than 40 basis points higher than all of the other ETFs included in the analysis.\u00a0 This seems a very high price to pay for a formulaic index strategy comprised 100% of US large cap stocks.<\/span><\/li>\n<\/ol>\n

    Now let us take a deeper dive. Last time we looked at four historical periods when the market declined to demonstrate that the Consumer Staples Sector ETFs held up better than the S&P 500 ETFs when the S&P 500 endured significant declines.\u00a0 In this analysis, the price return of XLP was compared against the price return of SPY, the original SPDR tracking the S&P 500, because they have histories that stretch back to before 2000.\u00a0\u00a0<\/span><\/p>\n

    The following chart adds DEF to the original analysis.\u00a0 All price returns are amalgamated, not annualized.\u00a0 Since DEF was launched in 2006, it has no data for the first downturn period but is included for the three remaining periods.<\/span><\/p>\n\n\n\n\n\n\n
    Time Period<\/span><\/td>\n1\/1\/2000 \u2013 12\/31\/2002<\/span><\/td>\n4\/1\/2008 \u2013 3\/31\/2009<\/span><\/td>\n1\/1\/2011 \u2013 8\/31\/2011<\/span><\/td>\n8\/1\/2018 \u2013 11\/30\/2018<\/span><\/td>\n<\/tr>\n
    DEF<\/span><\/td>\nN\/A<\/span><\/td>\n-30.59%<\/span><\/td>\n0.60%<\/span><\/td>\n-11.10%<\/span><\/td>\n<\/tr>\n
    XLP<\/b><\/td>\n-12.47%<\/b><\/td>\n-18.38%<\/b><\/td>\n4.01%<\/b><\/td>\n-4.91%<\/b><\/td>\n<\/tr>\n
    SPY<\/span><\/td>\n-38.22%<\/span><\/td>\n-35.11%<\/span><\/td>\n-11.25%<\/span><\/td>\n-13.92%<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    In the three comparable periods, DEF did not decline as much as SPY but underperformed XLP, the Consumer Staples Select Sector SPDR ETF.\u00a0 Analyzing all of the above findings together, DEF, the Invesco Defensive Equity ETF seems to consistently underperform the S&P 500 ETFs when the benchmark index enjoys robust returns while providing more upside participation than ETFs representing the Consumer Staples Sector.\u00a0 Alternatively, DEF returns hold up better than SPY and VOO returns when the S&P 500 suffers downturns but during those periods, DEF underperforms the Consumer Staples Sector ETFs.\u00a0\u00a0<\/span><\/p>\n

    Financial Advisory Services based on ValuEngine research available:<\/strong><\/h5>\n
    www.ValuEngineCapital.com<\/a><\/strong><\/h5>\n

    In conclusion, DEF participates more in gains during good periods for the S&P 500 while still falling short of the comparable returns realized by VOO, it simply has not been as good an offset as Consumer Staples Sector ETFs when the S&P goes south. As a tactical choice to lower Beta exposure, the Consumer Staples Sector ETFs are still our choice, especially FSTA and VDC.\u00a0 After all, the entire purpose of a defensive tactical deployment is to protect against a severe decline.\u00a0 FSTA, XLP and VDC have done that better throughout history than DEF.\u00a0 Throw in the significant difference in expense ratios and the decision not to use DEF becomes more emphatic.<\/span><\/p>\n

    By Herb Blank<\/p>\n

    ValuEngine, Inc<\/p>\n

    \n

    _______________________________________________<\/p>\n

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    About a month ago, this blog profiled the defensive qualities of the three largest ETFs representing the US Consumer Staples Sector.\u00a0 One of our readers asked a logical question.\u00a0 How did DEF, the Invesco Defensive Equity ETF, stack up against the sector ETFs?\u00a0 After all, its objective of its rules-based methodology is to select companies … Read more<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[130,1,39],"tags":[1843,1817,1841,1761,1719,1815,1731,1804,1842,1471,93,28,1656,63,1816,1768,1814],"_links":{"self":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2747"}],"collection":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/comments?post=2747"}],"version-history":[{"count":3,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2747\/revisions"}],"predecessor-version":[{"id":2750,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2747\/revisions\/2750"}],"wp:attachment":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/media?parent=2747"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/categories?post=2747"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/tags?post=2747"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}