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Both funds have excellent returns. Both funds are defensively structured. However, each favors a different bias within the Consumer Staple sector. Successful investors redirect funds according to economic conditions. During the lean times, the object is to get defensive. During the prosperous times, the investor can take more risks. One of the defensive sectors is Consumer Staples . According to Investopedia : Consumer staples are goods that people are unable or unwilling to cut out of their budgets regardless of their financial situation. Consumer staples stocks are considered non-cyclical, meaning that they are always in demand, no matter how well the economy is performing. Naturally, the investor may ‘pick and choose’ their favorite defensive holdings or may save a lot of time and effort by investing in an appropriate ETF. Two good examples are the First Trust Consumer Staples AlphaDEX ETF (NYSEARCA: FXG ) and the Guggenheim S&P 500 Equal Weight Consumer Staples ETF (NYSEARCA: RHS ). Fund 1-Month 3-Months Year-to-Date 1-Year 3-Year 5-Year Inception Inception Date Expense Ratio FXG -4.38% -1.16% 4.45% 12.26% 23.60% 21.60% 11.61% 5/8/2007 0.67% RHS -4.97% -1.34% 2.70% 10.50% 18.05% 18.09% 11.60% 11/1/2006 0.40% (Data from First Trust and Guggenheim) The above table indicates that in the short term, the First Trust fund slightly outperforms the Guggenheim fund and in the 1 to 5 year range First Trust fund outperforms Guggenheim fund by a respectable margin, however, returns since inception (only six months apart) are nearly identical. What makes this interesting is that the Guggenheim fund is an equally weighted fund; in particular, the Guggenheim fund tracks the S&P 500® Equal Weight Index which weights each of its component holdings at 0.2% of the index, rebalancing quarterly. On the other hand, the First Trust fund tracks the NYSE StrataQuant® Consumer Staples Index [STRQC] . The First Trust methodology is a little complex, but in essence, it is weighted by growth. It’s interesting to note the similarity between the two in a price history chart. (click to enlarge) Since one fund is performance weighted and the other equally weight it would make more sense to compare holdings; similarities and differences. First, where do they differ, if at all? The Guggenheim fund has 37 holdings; the First Trust has 39. Two of the First Trust holdings are “rights”, that is to say that the fund has the ‘right’ to “… purchase additional shares directly from the company in proportion to their existing holdings…—Investopedia “. Hence, aside from the ‘rights’ the funds have the same number of holdings. The following table lists the identical holdings but the weighting refers only to the First Trust fund, since in theory, the Guggenheim fund is equally weighted. Companies in Common FXG Weighting (RHS holdings are all equally weighted) Tyson Foods (NYSE: TSN ) 4.86% ConAgra Foods (NYSE: CAG ) 4.61% CVS Health (NYSE: CVS ) 4.59% Archer-Daniels-Midland (NYSE: ADM ) 4.35% Constellation Brands (NYSE: STZ ) 4.29% Walgreens Boots (NASDAQ: WBA ) 4.09% Reynolds American (NYSE: RAI ) 3.24% Hormel Foods (NYSE: HRL ) 3.17% Monster Beverage (NASDAQ: MNST ) 2.85% Whole Foods (NASDAQ: WFM ) 2.40% Sysco (NYSE: SYY ) 2.08% Campbell Soup (NYSE: CPB ) 2.05% Dr Pepper Snapple (NYSE: DPS ) 2.01% McCormick (NYSE: MKC ) 1.95% Brown-Forman (NYSE: BF.B ) 1.84% Procter & Gamble (NYSE: PG ) 1.70% Molson Coors (NYSE: TAP ) 0.99% Altria Group (NYSE: MO ) 0.94% J.M. Smucker (NYSE: SJM ) 0.90% General Mills (NYSE: GIS ) 0.85% Philip Morris (NYSE: PM ) 0.85% Average 2.60% (Data from First Trust and Guggenheim) Hence, the above table demonstrates that the well-known, well established, large cap consumer non-cyclicals as one would expect, are in both funds. However, there’s a divergence in those holdings not shared by the funds and it may be clearly observed in the following comparison tables. First Trust FXG Market Cap (Billions) Dividend Beta Weighting Guggenheim RHS Equally Weighted Market Cap (Billions) Dividend Beta Bunge (NYSE: BG ) $10.26 2.12% 0.93 2.32% Coca-Cola Enterprise (NYSE: CCE ) $11.3300 2.26% 1.04 Church & Dwight (NYSE: CHD ) $11.06 1.59% 0.33 0.86% Colgate-Palmolive (NYSE: CL ) $56.7710 2.41% 0.5 Edgewell (NYSE: EPC ) $5.31 2.34% 0.87 4.15% Clorox (NYSE: CLX ) $14.6110 2.71% 0.41 Flowers Foods (NYSE: FLO ) $5.11 2.38% 0.62 2.19% Costco (NASDAQ: COST ) $63.1140 1.11% 0.5 GNC (NYSE: GNC ) $3.81 1.60% 1.21 0.84% Estee Lauder (NYSE: EL ) $29.1270 1.23% 1.19 Hain Celestial (NASDAQ: HAIN ) $5.96 0.00% 0.068 4.81% Keurig-Green Mountain (NASDAQ: GMCR ) $9.2660 1.91% 0.83 Herbalife (NYSE: HLF ) $5.37 0.00% 1.44 2.97% Hershey (NYSE: HSY ) $14.8820 2.49% 0.35 Ingredion (NYSE: INGR ) $6.29 1.91% 1.37 4.19% Kellogg (NYSE: K ) $24.1810 2.92% 0.55 Pinnacle Foods (NYSE: PF ) $5.33 2.23% 0.1 0.83% Kimberly Clark (NYSE: KMB ) $39.0720 3.28% 0.3 Pilgrim’s Pride (NASDAQ: PPC ) $5.60 0.00% 0.57 3.56% Coca Cola (NYSE: KO ) $170.3020 3.37% 0.52 Rite Aid (NYSE: RAD ) $8.72 0.00% 1.56 3.91% Mondelez (NASDAQ: MDLZ ) $69.3500 1.58% 0.81 Spectrum Brands (SFB) $5.83 1.35% 0.82 3.65% Mead Johnson Nutrition (NYSE: MJN ) $15.1660 2.21% 0.86 WhiteWave Foods (NYSE: WWAV ) $8.11 0.00% 1.72 4.48% PepsiCo Inc. (NYSE: PEP ) 136.7190 3.02% 0.43 Averages $6.67 1.19% 0.893 2.98% Averages $50.2310 2.35% 0.63 (Data From Reuters, Yahoo!Finance) The difference is outstanding. The First Trust growth weighted fund is taking more risk with companies having smaller market capitalizations, a higher beta, (although still less than 1), and much smaller dividends. On the other hand, the Guggenheim Equally Weighted fund contains a real home run hitting line-up. The average market capitalization of the non-overlapping companies of the Guggenheim fund is a whopping $50.2310 billion compared with the First Trust fund’s non-overlapping companies $6.67 billion; that’s over 7.5 times! Even when excluding Coca-Cola and PepsiCo whose combined market cap is $346.87 billion, the average market cap of the non-overlapping Guggenheim companies is $31.533 billion, almost 5 times the market cap of the non-overlapping First Trust funds. The average dividend yield of the non-overlapping Guggenheim companies is nearly twice that of the First Trust non-overlapping companies and lastly the average beta of the Guggenheim non-overlapping companies is 29.45% less than average non-overlapping companies’ beta; 0.893 vs 0.63. The First Trust fund is tracking an index containing slightly more volatile stocks with smaller market caps and lower yields. They are consumer staple companies to be sure, but towards the more volatile end of the consumer staple spectrum. The Guggenheim fund, on the other hand, tracks an index which equally weights the crème de la crème of consumer staple companies. Since inception, the Guggenheim fund has returned $11.41 in dividends but the First Trust fund has returned $2.77 per share. (Please note that for the sake of compactness, the above comparison price/dividend history chart begin from the end of 2010). Lastly, some ETF metrics of both funds are summarized in the table below. Fund Total Net Assets (Billions) Daily Volume Shares Outstanding Rebalance Frequency Price/Earnings Price/Book Beta Sharpe Ratio Dividend Yield (TTM) FXG $2.712996 364,741 61,550,000 Quarterly 17.21 3.34 0.95 1.71 1.58% RHS $0.336326 59,471 3,100,000 Quarterly 23.83 4.47 0.98 1.77 1.82% (Data From Reuters, Yahoo!Finance) It’s fair to say that both funds are excellent representations of the Consumer Staple sector. One slightly outperforms the other in terms of market price and the other having a relatively good regular dividend, particularly important for disciplined dividend reinvesting. The deciding factor depends on the individual investor’s outlook. The First Trust Fund has a slight bias towards the risky end of consumer staples having more volatile components, whereas the Guggenheim Fund evenly weights with the sector best and stable companies, hence very much towards defense. Hence an investor with an optimistic outlook would obviously desire capital appreciation whereas an investor with a less optimistic outlook would obviously desire a solid defense. However, either one seems suitable for the investor with a long term savings outlook. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: CFDs, spreadbetting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk. Scalper1 News
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