Most product categories across the consumer staples space have been doing really well over the past few months. In fact, amid tepid economic figures, Brexit aftershocks, Federal Reserve’s reluctance to hike rates and other global growth issues, we believe investing in consumer staples stocks is safe because of their defensive nature.

The sector fared well in the first quarter of 2016. Lower gas prices and increasing consumer confidence did the trick for these stocks. However, it should be kept in mind that the consumer staples sector has the potential to face headwinds coming from the global market turmoil and continued volatility in the equity market.

Nevertheless, consumer confidence – a key determinant of the economy’s health – has seen moderate improvement in June, signaling that the U.S. economy is now ready to take on the overseas turmoil. (Read: Play Rio 2016 With These Stocks & ETFs)

According to the recent Conference Board data, the Consumer Confidence Index jumped to 98.0 in June from May’s reading of 92.4. This indicates rising consumer optimism regarding the labor market. Apparently, consumers expect moderate improvement in business and labor market conditions, as well as personal income prospects, thanks to the improving U.S. macro-economic environment. This, in turn, should boost consumer spending, which presently accounts for over two-thirds of the total U.S. economic activity.
 
The overall tone of the global market, however, remains unchanged, as we have estimated from the GDP figures. In fact, according to the third estimate released by the Bureau of Economic Analysis, after advancing 1.4% in the fourth quarter of 2015, GDP struggled at 1.1% in the first quarter. Nevertheless, the current GDP estimate is much ahead of last month’s tally of 0.8%, thanks to increased exports. (Read: Multi-Asset ETFs—The Bets of the Hour?).

Needless to say, equity markets have become extremely volatile and the overall economic picture appears to be rather bleak at the moment. Despite such a scenario, we expect the gradual improvement in consumer spending to result in a slow but steady recovery in the consumer staples industry.
 
Playing the Sector through ETFs
 
Owing to its defensive nature, this sector is likely to outperform when equity markets are bearish and underperform when they are bullish. The instability in the sector, which is a result of factors like U.S. and global exposure, can be countered with a wide array of ETFs.
 
ETFs can act as an excellent investment medium for those who are interested in long-term exposure to the consumer staples sector. For those interested in consumer staples, we have highlighted a few ETFs tracking the industry, any of which could be an attractive pick:
 

Consumer Staples Select Sector SPDR ETF (XLP - ETF report): 

Launched on Dec 16, 1998, XLP is an ETF that seeks investment results corresponding to the S&P Consumer Staples Select Sector Index. This fund consists of 38 stocks of companies that manufacture and sell a range of branded consumer packaged goods. The top holdings include The Procter & Gamble Co. (PG), The Coca-Cola Company (KO) and Philip Morris International, Inc. (PM). The fund’s expense ratio is 0.14% and it pays out a dividend yield of 2.28%. XLP had about $10.601 billion in assets under management as of Jul 7, 2016.
 
Vanguard Consumer Staples ETF (VDC - ETF report):

Initiated on Jan 26, 2004, VDC is an ETF that tracks the performance of the MSCI US Investable Market Consumer Staples 25/50 Index. It measures the investment return of large-, mid-, and small-cap U.S. stocks in the consumer staples sector. The fund has a total of 101 stocks, with the top three holdings being Procter & Gamble, Coca-Cola and Philip Morris. It charges 0.10% in expense ratio, while the yield is 3.28% as of now. VDC managed to attract $3.7 billion in assets under management till May 31, 2016. 

First Trust Consumer Staples AlphaDEX (FXG - ETF report):

FXG, launched on May 8, 2007, follows the equity index called StrataQuant Consumer Staples Index. FXG is made up of 40 consumer staples securities, with the top holdings being Post Holdings, Inc. (POST), Ingredion Inc. (INGR) and Sysco Corp. (SYY). The fund’s expense ratio is 0.62% and the dividend yield is 1.57%. It had $2.55 billion in assets under management as of Jul 8, 2016.
 
Guggenheim S&P 500 Equal Weight Consumer Staples (RHS - ETF report):

Launched on Nov 1, 2006, RHS is an ETF that seeks investment results corresponding to the S&P 500 Equal Weight Index Consumer Staples. This is an equal-weighted fund and constitutes 36 stocks, with the top holdings being The Hershey Company (HSY), Tyson Foods, Inc. (TSN) and General Mills, Inc. (GIS). The fund’s expense ratio is 0.40% and it has a dividend payout of 1.55%. RHS had about $839.1 million in assets under management as of Jul 8, 2016.
 
Fidelity MSCI Consumer Staples ETF (FSTA - ETF report):

FSTA, launched on Oct 21, 2013, is an ETF that seeks investment results corresponding to MSCI USA IMI Consumer Staples Index. This is a cap-weighted fund that constitutes 100 stocks, with the top holdings being Procter & Gamble, Coca-Cola and Philip Morris. The fund’s expense ratio is 0.12% and the dividend yield is 2.40%. FSTA had about $276.8 million in assets under management as of Jun 30, 2016.