Wednesday, December 5, 2007

Feed Me!

Gone largely unnoticed, the Global Consumer Staples ETF (KXI) has been producing a very nice return to investors. Benefiting from the global growth story, KXI’s holdings are well positioned to provide the basics of modern life as the populations of the emerging economies gradually migrate to the middle-income strata of their respective societies.

Since its introduction one year ago, KXI has outperformed the S&P 500 and the more domestically oriented Consumer Staples XLP (see chart above*). The standout reason for the outperformance vis-à-vis XLP is illustrated in the composition of their top ten holdings. As the table above* shows, XLP is much more heavily concentrated both in the top 10 holdings as a percent of the total portfolio as well as its two largest positions, PG and MO.

Investment Strategy Implications

KXI provides investors with a vehicle to play the rising middle-income classes of emerging countries. While the US economy may slump, the global growth story remains intact (unless, of course, you don’t buy the decoupling scenario). Additionally, anyone seeking to stay in the aged bull with a reduced level of risk, consumer staples as a group is a place to be. (It should be noted that the weak US dollar has aided the US oriented XLP as more issues in that portfolio are major global providers benefiting from the falling dollar, as evidenced by the fact of its near equal performance over the past several months.)

With a P/E just a notch above XLP and a beta of .68, KXI should be on every moderate to conservative investor’s radar screen.

*click on images to enlarge
Note: The above is strictly for informational purposes and should not be construed as a recommendation to buy or sell any securities. Please consult your financial advisor. Neither Vinny Catalano nor any member of his family owns the above referenced securities. Accounts managed by Blue Marble Research do have positions in the above referenced securities.

No comments: