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ETF Specialist

Play Defense With This ETF

A low-cost way to access 39 consumer defensive firms found in the S&P 500.

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U.S. consumer defensive stocks have rallied during the past year. Driving the U.S. consumer staples sector's outperformance have been several factors, chief among them interest rates that have gone lower. As many investors have stretched for yield in an era of ultralow interest rates, they have looked for bondlike substitutes in equity sectors like consumer staples and utilities. And with rates falling further, it's likely that some investors looking for income have sought solace in the consumer staples sector. That's not the entire story, however. Also driving the sector's success have been a generally strong U.S. consumer and higher valuations from takeover speculation that has swirled in the space.

Looking ahead, rising interest rates are a risk for the sector, along with continued strength in the dollar (which can be bad for some U.S. staples firms' overseas businesses) and weaker global consumer spending. Potential catalysts for consumer staples firms are innovation and product extensions, prudent acquisitions, and growth in emerging and developing markets.

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Robert Goldsborough does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.