FSTA - FSTA: A Good Staple For An Equity Portfolio

2023-12-21 13:13:11 ET

Summary

• Fidelity® MSCI Consumer Staples Index ETF is a defensive sector fund that aims to match the performance of the MSCI USA IMI Consumer Staples Index.
• Consumer staples are essential goods and services that remain in demand regardless of the state of the economy, making them a defensive sector.
• The FSTA ETF has a concentrated sector composition in consumer staples and offers low-risk exposure to a broad array of companies within the sector.

I've talked about defensive sector investing next year as being a big theme of mine, and the Fidelity® MSCI Consumer Staples Index ETF ( FSTA ) is a good fund to consider if you feel the same. Launched on October 21, 2013, FSTA is a passively managed exchange-traded fund, or ETF, that aims to match the performance of the MSCI USA IMI Consumer Staples Index before fees and expenses. The fund has garnered over $1 billion in assets, making it a significant player in the ETF landscape.

Consumer staples is a sector in the stock market that consists of companies providing goods and services that are considered essential for everyday use, regardless of the state of the economy. These items include food, beverages, household goods, and hygiene products. Because these products are essential, the sector tends to be less sensitive to economic cycles compared to other industries such as technology or finance. This makes consumer staples a defensive sector, as demand for these products remains relatively constant even during economic downturns. Investors often consider consumer staples stocks as a stable source of dividends and a safe haven during market volatility. Companies in this sector might include well-known brands like Procter & Gamble, Coca-Cola, and Walmart.

Relative to the SPDR® S&P 500 ETF Trust (SPY), the price ratio of FSTA looks interesting here. It may be at a significant ratio support level, suggesting near-term outperformance may be in the works entering 2024.

ETF Holdings: A Closer Look

Among its individual holdings, The Procter & Gamble Company ( PG ) is the largest, representing about 12.46% of total assets. Other holdings include Costco (COST), Walmart (WMT), The Coca-Cola Co (KO), and PepsiCo, Inc. (PEP). The top 10 holdings account for approximately 61% of total assets under management. It's worth noting that FSTA's holdings are not static; they are subject to change based on market conditions and the fund's investment strategy.

No surprises here, but FSTA's sector composition is concentrated in Consumer Staples, with a significant portion of its assets allocated to companies in this sector. This allocation offers investors low-risk exposure to a broad array of companies within the sector.

The ETF's largest sector allocations are in Beverages, Merchandise, and Household Products. These sectors are considered to be non-cyclical, implying that their demand remains relatively stable regardless of the state of the economy.

Peer Comparison

When compared to other ETFs in the Consumer Staples sector, FSTA holds its own. For instance, the Vanguard Consumer Staples ETF ( VDC ) tracks the MSCI US Investable Market Consumer Staples 25/50 Index. The Consumer Staples Select Sector SPDR ETF ( XLP ) tracks the Consumer Staples Select Sector Index.

In terms of expense ratio, FSTA is among the least expensive products in the space, with an annual operating expense of 0.084%.

Pros and Cons of Investing in the Consumer Staples Theme

Investing in the Consumer Staples sector comes with its unique set of advantages and disadvantages. On the positive side, companies in this sector sell essential products that consumers continue to purchase, even during economic downturns. This makes the sector relatively resilient and provides a buffer against market volatility.

However, the sector also has its drawbacks. For one, growth opportunities may be limited given the stable demand for consumer staples products. Furthermore, these companies are vulnerable to fluctuations in commodity prices, which can impact their profitability.

Conclusion: Should You Invest in FSTA?

Fidelity® MSCI Consumer Staples Index ETF offers a straightforward way for investors to gain exposure to the Consumer Staples sector. With its low-cost structure and diversified holdings, it represents a compelling investment vehicle for long-term investors seeking stable returns. This is a good fund and one that can perform relatively well if we enter a recession relative to more cyclical growth sectors like Technology.

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