Why the Vanguard Consumer Staples Index Fund ETF (VDC) Could Be the Smartest Pre-Summer Addition to Your Portfolio
Key Points
The Vanguard Consumer Staples Index Fund ETF encompasses about 100 consumer staples businesses, such as Procter & Gamble and Walmart.
It recently sported a dividend yield of 2.1%.
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What are you expecting this summer? Lots of hot and humid days? Time spent working in your garden? Maybe you're expecting a stock market pullback, or a recession. After all, the stock market has been soaring for much of the last decade, and may be due for a breather this year or next.
If you're anticipating an economic slowdown in the relatively near future, consider investing in the Vanguard Consumer Staples Index Fund ETF (NYSEMKT: VDC) -- because consumer staples are items that we tend to need to buy no matter what the economy is doing.
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Meet the Vanguard Consumer Staples Index Fund ETF
The Vanguard Consumer Staples Index Fund ETF is an index fund that tracks the MSCI US Investable Market Consumer Staples 25/50 index, focused on, of course, consumer staples specialists.
It's also an exchange-traded fund (ETF) -- a fund that trades like a stock, meaning that you can place an order to buy or sell as many shares as you'd like via any good brokerage -- at any time during the trading day. (Mutual funds generally handle their inflows and outflows once a day.)
One excellent feature of the Vanguard Consumer Staples Index Fund ETF is its low expense ratio (annual fee). It's just 0.09%, meaning you'll have to cough up only $9 for every $10,000 you have invested in the fund.
Here's how the ETF has performed:
|
Over the Last... |
Average Annual Return |
|---|---|
|
One year |
5.4% |
|
Three years |
8.69% |
|
Five years |
6.83% |
|
Ten years |
9.84% |
Data source: Morningstar.com, as of May 28.
The ETF contains about 104 stocks. Here are its recent top 10 holdings, which together make up a hefty 65% of the fund's value:
|
Company |
Recent Weighting in the ETF |
|---|---|
|
Walmart |
16.15% |
|
Costco Wholesale |
12.26% |
|
Procter & Gamble |
9.12% |
|
Coca-Cola |
8.34% |
|
PepsiCo |
4.53% |
|
Philip Morris International |
4.16% |
|
Altria Group |
3.92% |
|
Mondelez International |
2.59% |
|
Colgate-Palmolive |
2.15% |
|
Target |
1.99% |
Data source: Morningstar.com, as of May 28.
Why buy this ETF?
If you're thinking that you don't love that the top 10 holdings make up two-thirds of the fund's value, that's fair. You might invest instead in the Invesco S&P 500 Equal Weight Consumer Staples ETF -- which holds about 36 consumer staples companies in roughly equal proportion. But its returns are considerably lower than those of the Vanguard ETF.
Companies with outsize weightings have simply grown so much that they've become huge -- and they're likely to keep growing.
Returning to the possibility of a recession, or a stock-market crash or correction, think about some of the ETF's top holdings. If consumers are strapped for cash, they may shop more at lower-cost retailers such as Walmart. Or they might stock up on bulk items at good prices at Costco. They will likely keep buying toothpaste and diapers, and if they smoke, they'll likely keep buying cigarettes. Many will keep buying their favorite sodas, juices, and pretzels, as well.
The Vanguard Consumer Staples Index Fund ETF may not grow like gangbusters, but it's not likely to drop as much as many other funds in a market downturn. And it offers a dividend, too, recently yielding 2.1%.
Should you buy stock in Vanguard World Fund - Vanguard Consumer Staples ETF right now?
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Selena Maranjian has positions in Altria Group, Costco Wholesale, and Procter & Gamble. The Motley Fool has positions in and recommends Colgate-Palmolive, Costco Wholesale, Target, and Walmart. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
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