Consumer Staples ETF Offers Protection

NEW YORK (TheStreet) - Consumer staples could be attractive as we head further into 2011.

ETF investors can access consumer staples through a number of different avenues. One of the most popular options is the Consumer Staples Select Sector SPDR (XLP).

This fund provides exposure to a wide range of household names, including Procter & Gamble (PG), Phillip Morris International (PM), Wal-Mart (WMT), Coca-Cola (KO) and Kraft Foods (KFT).

Although its index boasts over 40 positions, XLP's 10 largest holdings heavily influence its daily since they account for close to two-thirds of its index.

So far this year, investors have already faced a slew of challenges that have tested their confidence in the ongoing recovery.

On a daily basis we are reminded of the political protests that have swept through the Middle East and North Africa, the inflation concerns in emerging markets, and the debt crisis in some of Europe's more vulnerable regions. Though daunting, it is important to remember that this is not the first time we have faced turmoil in times global market recoveries. Nor will it likely be the last.

Rather than fleeing the market, investors can offset market fears by dedicating a percentage of their portfolio to defensive-minded asset classes.

In the past, I have pointed to gold funds such as iShares Gold Trust (IAU) and dividend-focused ETFs like iShares Dow Jones Select Dividend Index Fund (DVY) as ways investors can alleviate jitters.

However, companies hailing in the consumer sector such as Coca-Cola, Procter & Gamble and Colgate-Palmolive (CL) could be another source of relief as well. Their stability and dedication to yield make them attractive during trying times such as these. On top providing investors with protection, a fund such as XLP can also be used as a conservative, alternative way to access the ongoing consumer recovery taking place in the U.S.

XLP has struggled since the start of the year as the markets have pushed relentlessly higher and investors have piled into riskier sectors of the market. The fund's lag extends back further, though. Over the past year, XLP has noticeably underperformed the broader market, as indicated by its action compared to SPDR S&P 500 ETF (SPY). During this period XLP has jumped 11% while SPY has gained 18%.

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