Tag Archives: vcsax

VCSAX: Consumer Staples Don’t Get Much Better Than This

Summary Low expense ratio with great long term returns. High yield for some volatility protection. Good sector diversification and strong holdings. Mutual funds are a good way to improve an investor’s risk adjusted return. Investing in consumer staples is not only a good way to diversify, but also helps with downside risk when the market takes a tumble. The fund I will be looking at is the Consumer Staples Index Fund Admiral Shares (MUTF: VCSAX ) which seeks to track the performance of the MSCI US Investable Market Consumer Staples 25/50 Index. This index has performed well over the last decade and comes with a decent dividend yield Yield This index has a distribution yield of 2.47%. If you’re looking for a high yield portfolio and seeking to invest in consumer staples, VCSAX is a great fit. Even without needing an income from your portfolio this has been a good investment showing an annual return of 10.39% over the past ten years. A lot of this can be attributed to consumer staples not taking the same hit the S&P took in 2008. Expense Ratio The expense ratio for VCSAX is .12% which is fine for being a passively managed mutual fund. I’m in favor of going the passively managed route for the consumer staples sector. With the Lipper peer average expense ratio being 1.51% it’s not worth the trouble of trying to beat an index. This is a top percentile performing index compared to competitors; When you don’t have to pay a high expense ratio – don’t! Diversification Index is well diversified and attempts to fully replicate its benchmark. The benchmark makes investments in the consumer staples market and should tend to be less sensitive to economic cycles. There is high correlation with the S&P and an investor should expect a lot of volatility if this is a large portion of their portfolio. Here are a list of the top ten holdings: There are 100 holdings and 56% of the weight is in the top ten. Even though this fund has performed very well, I would still like to see more diversification. I would make this a small portion of my portfolio for a more balanced return in the event of another big hit taken by the market. On the bright side, many of the companies in the top ten have been around for a while and shown they can shift strategies when needed. Procter & Gamble (NYSE: PG ) has been around since 1837 and has changed strategies many times. If there was ever a company to bet on surviving, this wouldn’t be a bad choice. PG has shown a long track record of a rising dividend which will help in a down market. The growth has been iffy lately but PG is making many changes and investing in the future. During an earnings calls management said they had many new products coming out. With the billions they are spending on R&D, if some of the proprietary technologies are successful there may be some serious company growth down the road. If I were to pick a single consumer staples company for my portfolio, Procter & Gamble is an easy choice for a long investment. Performance The following graphs show a major upside to consumer staples over the last decade: Over the past five years VCSAX and the S&P 500 have shown a strong correlation, as I would suspect. Looking at the ten year range there is a large difference. During a market crash a consumer staples index is going to take a punch but people are still going to make purchases. There will be some cutbacks, but nothing like there will be on the market as a whole. The other reason for the index to show lower losses is the high yield which will help protect returns during a down market. Conclusion When it comes to a consumer staples index VCSAX is as good as they come. The low expense ratio is really nice to see and helps with staying close in returns to the benchmark: In addition to having a good five year annual return of 14.54%, there has also been a great ten year return of 10.39%. With the crash in 2008, many investments reacted like the S&P 500 and it really diminished returns over the last decade. Consumer staples is a great way to reduce portfolio risk when it comes to the market taking a dive.

Best And Worst Q4’15: Consumer Staples ETFs, Mutual Funds And Key Holdings

Summary The Consumer Staples sector ranks first in Q4’15. Based on an aggregation of ratings of 10 ETFs and 8 mutual funds.. FSTA is our top-rated Consumer Staples ETF and VCSAX is our top-rated Consumer Staples mutual fund.. The Consumer Staples sector ranks first out of the 10 sectors as detailed in our Q4’15 Sector Ratings for ETFs and Mutual Funds report. It gets our Attractive rating, which is based on aggregation of ratings of 10 ETFs and eight mutual funds in the Consumer Staples sector. See a recap of our Q3’15 Sector Ratings here . Figure 1 ranks from best to worst the nine Consumer Staples ETFs that meet our liquidity standards and Figure 2 ranks from best to worst all eight Consumer Staples mutual funds. Not all Consumer Staples sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 16 to 114). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Consumer Staples sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. It is rare that two of the worst ETFs in this sector hold enough quality stocks to earn an Attractive-or-better rating. Figure 1: ETFs with the Best & Worst Ratings – Top 5 (click to enlarge) * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The ProShares Ultra Consumer Goods ETF (NYSEARCA: UGE ) is excluded from Figure 1 because its total net assets are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 (click to enlarge) * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Fidelity MSCI Consumer Staples Index ETF (NYSEARCA: FSTA ) is the top-rated Consumer Staples ETF and the Vanguard World Funds: Consumer Staples Index (MUTF: VCSAX ) is the top-rated Consumer Staples mutual fund. FSTA earns a Very Attractive rating and VCSAX earns an Attractive rating. The PowerShares S&P SmallCap Consumer Staples Portfolio ETF (NASDAQ: PSCC ) is the worst-rated Consumer Staples ETF and the ICON Consumer Staples Fund (MUTF: ICRAX ) is the worst-rated Consumer Staples mutual fund. PSCC earns a Neutral rating and ICRAX earns a Very Dangerous rating 112 stocks of the 3000+ we cover are classified as Consumer Staples stocks. Cal-Maine Foods (NASDAQ: CALM ) is one of our favorite stocks held by Consumer Staples ETFs and mutual funds and was previously a Stock Pick of the Week . It earns a Very Attractive rating. Since 1998, Cal-Maine has grown after-tax profit ( NOPAT ) by an impressive 20% compounded annually. Over this same timeframe, Cal-Maine’s return on invested capital ( ROIC ) has improved from 5% to its current top quintile 45%. Despite nearly two decades of excellent business operations, CALM is priced for significant profit decline. At its current price of $61/share, CALM has a price to economic book value ( PEBV ) ratio of 0.7. This ratio implies that the market expects the company’s profits to permanently decline by 30%. If Cal-Maine can grow NOPAT by just 8% compounded annually over the next decade , the stock is worth $76/share today – a 25% upside. Seneca Foods Corp (NASDAQ: SENEA ) is one of our least favorite stocks held by Consumer Staples ETFs and mutual funds and earns a Dangerous rating. Since 2012, the company has been unable to grow profits, as NOPAT has declined by 25% compounded annually. Making matters worse, Seneca’s ROIC fell to a bottom quintile -2% from 8% over this same timeframe. Despite the deteriorating business fundamentals, SENEA remains priced for significant profit growth moving forward. To justify its current price of $26/share, Seneca must grow NOPAT by 11% compounded annually for the next 20 years . Investors would be wise to stay away from overvalued stocks like SENEA. Figures 3 and 4 show the rating landscape of all Consumer Staples ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs (click to enlarge) Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds (click to enlarge) Sources: New Constructs, LLC and company filings Disclosure: David Trainer and Blaine Skaggs receive no compensation to write about any specific stock, sector or theme.