This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Consumer Staple ETFs Stay in the Black

Stocks in this article: XLPVDCRHS

Part of the appeal of the consumer ETFs is that they are anchored by companies with long records of producing high returns on equity. Big holdings with rich profits include Kimberly-Clark (KMB), maker of Kleenex tissues, and cereal maker General Mills (GIS). According to academic research, businesses that generated fat profits in the past tend to thrive in the future. In a recent study, Chuck Joyce and Kimball Mayer, portfolio managers for GMO, looked at the profitability of the 1000 biggest stocks five years ago. Then they checked to see if the performance persisted. The researchers found that profitable companies tend to stay that way.

The GMO managers say that companies can only achieve persistent high profits if they have big advantages, such as superior brands, strong franchises, or intellectual capital that competitors cannot easily duplicate. Companies that gain advantages tend to keep them for years. The researchers cite the example of Tootsie Roll (TR) and lubricant maker WD-40 (WDFC). "Each of these companies has huge brand recognition and the profitability to match," Joyce and Mayer wrote in a recent white paper.


The profitable companies rewarded investors with superior returns, the GMO researchers found. This occurred because the reliable performers tended to be undervalued and overlooked by investors who had little interest in boring companies. "Their predictably higher profits are not quite high enough to command the attention of a market in thrall to the possibility of the next big jackpot," the researchers wrote.

The GMO research should reassure investors that the consumer ETFs can make solid holdings. Just as consumer staples delivered steady returns in the past, they should remain reliable holdings going forward.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,623.86 +9.05 0.05%
S&P 500 1,941.78 +0.50 0.03%
NASDAQ 4,418.24 -1.2380 -0.03%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs