The consumer staple sector showed great improvement in the first half of 2015 on the back of moderate economic recovery, better job prospects, improved business and renewed optimism as a result of the housing recovery. Rising wages and cheaper fuel were the other positives.
 
With oil and natural gas prices subsiding, consumers are left with more disposable income. Commodity costs have in many cases stabilized, which have improved profit margins for certain staples companies. Consumers are also expecting lower inflation primarily due to lower gas prices. (Read: 3 Consumer ETFs for Momentum Play)
 
However, the continued appreciation of the U.S. dollar relative to most foreign currencies acted as a near-term headwind to the earnings of U.S. - based staples companies with significant international operations. Other risks included potential price wars, a competitive environment, slowdown in international markets (including continued slowdown in China), political turmoil in Russia, sluggishness in Japan and an unfavorable economic environment in Europe.
 
Industry players like McCormick & Co, Inc. (MKC), Energizer Holding, Inc. (ENR), General Mills, Inc. (GIS), Molson Coors Brewing Co. (TAP), Tyson Foods, Inc. (TSN) have posted positive earnings surprises of 9.4%, 14.5%, 4.5%, 7% and 2.7%, respectively, in their recently reported quarters.
 
On the contrary, Monster Beverage Corporation (MNST) and Sysco Corp. (SYY) fell short of their respective Zacks Consensus Estimate, mainly due to currency headwinds. Hopefully, the second half of the year will prove to be better for these companies with a strong rebound in earnings. (Read: 4 ETFs Leading the Pack in Q2 Earnings)
 
Playing the Sector through ETFs
 
Given the defensive nature of this sector, it will outperform when equity markets are more bearish and underperform when bullish. The ups and downs of the sector due to the U.S. and global exposure can be played with a wide array of ETFs.
 
The ETFs can act as an excellent investment medium for those who wish to take a long-term exposure within the consumer staples sector.
 
For those interested in taking a look at consumer staples, we have highlighted a few ETFs tracking the industry, any of which could be an interesting pick:
 
Consumer Staples Select Sector SPDR ETF (XLP):
 
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 39 stocks of companies that manufacture and sell a range of branded consumer packaged goods, with the top holdings being The Procter & Gamble Co. (PG), The Coca-Cola Company (KO) and Philip Morris International, Inc. (PM). The fund’s expense ratio is 0.15% and it pays out a dividend yield of 2.56%. XLP had about $7.37 billion in assets under management as of Jul 2, 2015.

 
Vanguard Consumer Staples ETF (VDC):
 
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 PepsiCo, Inc. (PEP). It charges 0.12% in expense ratio, while the yield is 1.91% as of now. VDC has managed to attract $2.8 billion in assets under management till May 31, 2015.
 
First Trust Consumer Staples AlphaDEX (FXG):
 
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 The WhiteWave Foods Company (WWAV), Pilgrim's Pride Corporation (PPC) and CVS Health Corporation (CVS). The fund’s expense ratio is 0.67% and the dividend yield is 1.55%. It had $2.62 billion in assets under management as of Jul 2, 2015.
 
Guggenheim S&P 500 Equal Weight Consumer Staples (RHS):
 
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 37 stocks, with the top holdings being ConAgra Foods, Inc. (CAG), Monster Beverage Corp. (MNST) and Reynolds American, Inc. (RAI). The fund’s expense ratio is 0.40% and it pays out a dividend yield of 1.81%. RHS had about $271.0 million in assets under management as of Jul 6, 2015.
 
Fidelity MSCI Consumer Staples ETF (FSTA):
 
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 and constitutes 100 stocks, with the top holdings being Procter & Gamble, Coca-Cola and PepsiCo. The fund’s expense ratio is 0.12% and the dividend yield is 2.67%. FSTA had about $147.1 million in assets under management as of Jun 30, 2015.