Consumer Staple ETFs Stay in the Black

NEW YORK (TheStreet) -- Consumer staple ETFs have provided protection lately. While the S&P 500 lost 3.6% in the last three months, Consumer Staples Select Sector SPDR(XLP) returned 0.7%, according to Morningstar. Other ETFs that stayed in the black include Vanguard Consumer Staples(VDC) and Guggenheim S&P 500 Equal Weight Consumer Staples(RHS) .

The strong showing was not surprising. Consumer stocks have long been steady performers. The sector includes companies that make beverages, food, household goods, and tobacco. Prominent consumer stocks include Procter & Gamble(PG) , Coca-Cola(KO) , and Kraft Foods(KFT) .

Providing low-priced necessities, the companies tend to record reliable sales year after year. Consumer stocks have enjoyed a special appeal lately because they offer rich dividends, which investors crave at a time of skimpy bond yields. The Vanguard consumer ETF yields 2.80%, compared to a yield of 1.67% for the 10-year Treasury.

Though consumer stocks sometimes lag in bull markets, they excel in downturns. When the S&P 500 lost 37% in the turmoil of 2008, Consumer Staples SPDR ETF only fell 14.8%. Avoiding big losses in bear markets, the consumer ETFs have delivered solid long-term returns. While the S&P 500 lost 0.2% annually during the past five years, the SPDR ETF returned 7.4%. The Vanguard and Guggenheim funds each returned 7.3%.

After their strong performance of recent years, the consumer stocks are no longer screaming bargains. The SPDR fund has a price-earnings ratio of 17.7, compared to a multiple of 15.4 for the S&P 500. Still, the consumer sector is appealing, says Robert Goldsborough, a Morningstar ETF analyst, who recommends the SPDR ETF for cautious investors. "The fund can be a sound defensive holding," he says.

The SDPR ETF is the biggest in the field with $5.7 billion in assets. The fund charges an expense ratio of 0.18%. The Vanguard fund has $1 billion in assets and charges 0.19%.