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%.
Goldsborough argues that consumer stocks should continue delivering steady returns. The sector is full of dominant companies that can increase their sales at mid-single digit rates, he says. Even if sales in the U.S. and Europe stagnate, the companies could continue growing because of their expanding presence in the emerging markets. Companies such as Coca-Cola and Colgate-Palmolive ( CL) have been spending heavily to reach eager consumers in Asia and Latin America. That has provided a big boost to earnings.