In this article, we discuss 14 best defensive ETFs to buy. If you want to skip our discussion on the consumer defensive industry, head over to 5 Best Defensive ETFs To Buy For Plunging Markets.
In January 2024, Goldman Sachs strategists classified small-caps and consumer staples stocks as potential areas of value in the current US stock market. The strategists observed that the market rally has gone beyond mega-cap stocks, and they suggested three trades that offer value in this highly-valued market. First are small caps, represented by the Russell 2000, which now trade below their 10-year average price-to-book ratio. The strategists expect a potential return of roughly 15% for the Russell 2000 in the next 12 months. Secondly, Goldman Sachs strategists favor stocks with weak pricing power, which could benefit from improving profit margins in a solid economic growth environment. Lastly, consumer staples shares are seen as offering attractive valuations, particularly as concerns about higher costs and new weight-loss drugs’ impact on consumer behavior show signs of stabilizing. The investment firm added that “pessimism around the Consumer Staples earnings outlook has also shown signs of bottoming”.
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Nik Modi, managing director and global co-head of consumer research at RBC Capital Markets, stated on BNN Bloomberg in January 2024 that it is challenging to generate profits in the consumer staple sector. However, he identified three companies with promising growth prospects in 2024 – Constellation Brands, Inc. (NYSE:STZ), Monster Beverage Corporation (NASDAQ:MNST), and Mondelez International, Inc. (NASDAQ:MDLZ). He commented:
“There are bright spots … in this space and in an environment of underperformance, it really comes down to which companies have volume growth and which companies don’t, and that’s really what our top picks are oriented around.”
Consumer staples stocks faced challenges in 2023, but now with attractive valuations and the potential for rising profit margins and volumes in 2024, the sector may see better performance ahead, especially if defensive and dividend-paying stocks regain favor with investors, as per Fidelity Investments. Last year, the defensive sector lagged behind as investors leaned towards mega-cap growth companies. Many firms faced difficulties amid a tough consumer environment marked by inflation and market share erosion to generic alternatives. Some companies responded by increasing discounts and advertising, though this didn’t always translate to sales growth.
Also Read: 12 Best Financial and Fintech ETFs To Buy
The packaged foods and meats segment, in particular, felt pressure from private-label alternatives and concerns regarding the impact of new weight-loss drugs on demand. On the other hand, household products companies benefited from improved gross profit margins due to lower input and freight costs. Fidelity noted that the sector’s performance in 2024 hinges on the potential improvement in sales volumes, which could alleviate pricing pressure and enhance profit margins. Companies with appealing valuations and robust pricing power, especially in household products and soda, may present promising returns. Even with economic uncertainties, people keep buying everyday items, which could lead to more sales if consumers and the economy stay stable.
Some of the best defensive stocks to buy include PepsiCo, Inc. (NASDAQ:PEP), Costco Wholesale Corporation (NASDAQ:COST), and The Procter & Gamble Company (NYSE:PG). However, we discuss the best defensive ETFs in this article.
Our Methodology
We curated our list of the defensive (consumer staples, food and beverage, and total market exposure) ETFs by choosing consensus picks from multiple credible websites. We have mentioned the 5-year share price performance of each ETF as of March 25, 2024, ranking the list in ascending order of the share performance. We have also discussed the top holdings of the ETFs to offer better insight to potential investors.
Best Defensive ETFs To Buy For Plunging Markets
14. Goldman Sachs Defensive Equity ETF (NYSE:GDEF)
5-Year Share Price Performance as of March 25: 11.50%
Goldman Sachs Defensive Equity ETF (NYSE:GDEF)’s goal is to achieve long-term capital growth while maintaining lower volatility compared to equity markets. It is an actively managed ETF that was launched on September 30, 2020. As of March 25, the fund owns $7.22 million in net assets, along with a portfolio of 228 stocks and a net expense ratio of 0.55%. It is one of the best defensive ETFs to buy and hold.
Microsoft Corporation (NASDAQ:MSFT) is the top holding of Goldman Sachs Defensive Equity ETF (NYSE:GDEF). On March 21, Microsoft received an Overweight rating from KeyBanc due to its diverse AI monetization methods. KeyBanc’s analysis highlighted trends like AI monetization and cloud efficiency, anticipating a robust year for the enterprise software sector in 2024.
According to Insider Monkey’s fourth quarter database, 302 hedge funds were long Microsoft Corporation (NASDAQ:MSFT), compared to 306 funds in the prior quarter. Bill & Melinda Gates Foundation Trust is the largest stakeholder of the company, with a position worth $14.3 billion.
Carillon Eagle Growth & Income Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its fourth quarter 2023 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) performed well after reporting strong earnings supported by accelerated growth from Azure. The cloud business is seeing consistent trends from optimization while AI has contributed strongly to its growth.”
13. iShares Global Consumer Staples ETF (NYSE:KXI)
5-Year Share Price Performance as of March 25: 16.78%
iShares Global Consumer Staples ETF (NYSE:KXI) is designed to track the performance of the StrataQuant Consumer Staples Index. It ranks 12th on our list of the best defensive ETFs. The fund was established on May 8, 2007. Its expense ratio is 0.63%, along with net assets of $437.2 million and a portfolio comprising 40 stocks as of March 22, 2024.
Freshpet, Inc. (NASDAQ:FRPT) is the largest holding of the iShares Global Consumer Staples ETF (NYSE:KXI). Freshpet, Inc. (NASDAQ:FRPT) specializes in manufacturing, distributing, and marketing natural fresh meals and treats for dogs and cats. On February 26, the company reported a Q4 GAAP EPS of $0.31 and a revenue of $215.4 million, outperforming Wall Street estimates by $0.27 and $10.8 million, respectively.
According to Insider Monkey’s fourth quarter database, 27 hedge funds were long Freshpet, Inc. (NASDAQ:FRPT), compared to 23 funds in the last quarter.
In addition to PepsiCo, Inc. (NASDAQ:PEP), Costco Wholesale Corporation (NASDAQ:COST), and The Procter & Gamble Company (NYSE:PG), Freshpet, Inc. (NASDAQ:FRPT) is one of the best defensive stocks to monitor.
Artisan Small Cap Fund stated the following regarding Freshpet, Inc. (NASDAQ:FRPT) in its fourth quarter 2023 investor letter:
“We ended our investment campaigns in BlackLine, Shoals Technologies and Freshpet, Inc. (NASDAQ:FRPT) during the quarter. Freshpet sells refrigerated, fresh pet food. Our thesis is predicated on the company sitting at the intersection of two significant, long-duration trends: health and wellness, and the humanization of pets. It also has a sticky customer base, high barriers to entry and a unique distribution model. However, given a challenging backdrop of consumers trading down and increased promotional activity, we decided to move on as the stock approached our estimate of private market value.”
12. First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG)
5-Year Share Price Performance as of March 25: 22.79%
First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG) is one of the best defensive ETFs to buy. The ETF is designed to track the performance of the Nasdaq US Smart Food & Beverage Index, providing exposure to companies involved in the production, distribution, and marketing of food and beverage products in the United States. First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG) was launched on September 20, 2016. Its expense ratio is 0.60%, along with net assets of $57.7 million and a portfolio of 30 stocks as of March 22, 2024.
Archer-Daniels-Midland Company (NYSE:ADM) is the largest holding of the First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG). On March 13, Archer-Daniels-Midland Company (NYSE:ADM) initiated an accelerated share repurchase agreement to buy back $1 billion of its common stock. This agreement, facilitated by Merrill Lynch International, will involve monthly share deliveries starting from March 2024. The buyback falls under ADM’s existing 200 million share repurchase program scheduled until 2024. The transaction is expected to conclude by the end of the second quarter of 2024.
According to Insider Monkey’s fourth quarter database, 34 hedge funds were bullish on Archer-Daniels-Midland Company (NYSE:ADM), compared to 37 funds in the last quarter.
Horizon Kinetics stated the following regarding Archer-Daniels-Midland Company (NYSE:ADM) in its fourth quarter 2023 investor letter:
“There are the securities exchanges in our strategies, of course, which we’ve adequately covered. Also, ‘2nd tier’ varieties of asset-light businesses, like car dealerships (AutoNation and Penske Auto Group) and shipping brokers (Clarkson PLC and Braemar PLC). Less well reviewed have been a few companies that are asset intensive, but have particular inflation-beneficiary attributes.
One such is Archer-Daniels-Midland Company (NYSE:ADM), one of the largest agricultural commodities processors. They turn grains and legumes into flour, protein meals, oils, starches, syrups, cellulose pulp, what have you. Almost everything on a dinner plate came through, in some fashion, ADM’s hands. Yes, they have machinery, terminals, ships, railroad cars. And as an intermediary, theirs is a low-margin business. But it is a constant-spread business that earns a pretty stable margin on a very large sales base. When pricing rises for a period of time, that percentage spread is on a higher dollar amount, hence more dollars of income—so income can rise nicely when agricultural commodities do. And there is the opportunity to expand their margins somewhat…” (Click here to read the full text)
11. Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSE:RSPS)
5-Year Share Price Performance as of March 25: 23.29%
Next on our list of the best defensive ETFs is Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSE:RSPS). This ETF tracks the S&P 500 Equal Weight Consumer Staples Index, which evenly distributes weights among consumer staples stocks in the S&P 500 Index. The fund was launched on November 1, 2006. As of March 22, 2024, Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSE:RSPS) holds a portfolio comprising 39 stocks, along with an expense ratio of 0.40%.
Bunge Global SA (NYSE:BG) is one of the largest holdings of the Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSE:RSPS). On February 7, Bunge Global SA (NYSE:BG) reported a Q4 non-GAAP EPS of $3.70 and a revenue of $14.94 billion, outperforming Wall Street estimates by $0.90 and $50 million, respectively.
According to Insider Monkey’s fourth quarter database, 32 hedge funds were bullish on Bunge Global SA (NYSE:BG), compared to 31 funds in the prior quarter.
Here is what Old West Investment Management has to say about Bunge Limited (NYSE:BG) in its Q1 2022 investor letter:
“Bunge (pronounced BUN-GEE) Ltd (NYSE:BG) is one of the biggest agribusinesses and food companies in the world. There are four worldwide companies that dominate the sector, the others being Archer-Daniels-Midland Cargill, and Dreyfuss. One of our favorite ways to screen for new ideas is following insider buying. When I saw the Form 4 filed by new Bunge CEO Greg Heckman, his purchase of $9 million of BG stock intrigued me. My initial thought was the company gave him the stock as a signing bonus. I contacted BG Investor Relations and asked whether it was a signing bonus or did Heckman actually write a check for $9 million. IR assured me it was his own hard-earned money that he invested in the company he was about to run.
Heckman was a long time executive at Conagra Foods who obviously sensed opportunity at BG. One of his first moves as CEO was to move the company’s HQ from New York to St. Louis, right in the middle of America’s breadbasket. BG had been plagued for years with poor decisions by underperforming management. Heckman’s decision to move to St. Louis was indicative of a no-nonsense style and he would commence cutting expenses and selling non-core assets…” (Click here to see the full text)
10. Consumer Staples Select Sector SPDR Fund (NYSE:XLP)
5-Year Share Price Performance as of March 25: 34.39%
Consumer Staples Select Sector SPDR Fund (NYSE:XLP) ranks 9th on our list of the best defensive ETFs. The fund aims to replicate the performance of the Consumer Staples Select Sector Index before expenses. Consumer Staples Select Sector SPDR Fund (NYSE:XLP) provides precise exposure to multiple industries within the consumer staples sector, including distribution and retail, household products, food products, beverages, tobacco, and personal care products. As of March 22, 2024, Consumer Staples Select Sector SPDR Fund (NYSE:XLP) had $15,611.86 million in assets under management, featuring a gross expense ratio of 0.09% and a portfolio of 38 stocks.
The Procter & Gamble Company (NYSE:PG) is the largest holding of the Consumer Staples Select Sector SPDR Fund (NYSE:XLP). On January 23, The Procter & Gamble Company (NYSE:PG) reported its financial results for the second quarter fiscal year 2024. The company announced a non-GAAP EPS of $1.84, beating market estimates by $0.14, and a revenue of $21.44 billion, missing consensus by $60 million.
According to Insider Monkey’s fourth quarter database, 71 hedge funds were bullish on The Procter & Gamble Company (NYSE:PG), compared to 75 funds in the prior quarter.
Madison Sustainable Equity Fund stated the following regarding The Procter & Gamble Company (NYSE:PG) in its fourth quarter 2023 investor letter:
“We sold The Procter & Gamble Company (NYSE:PG). After two years of strong pricing growth, the company is facing slower market growth in both the US and Europe. China, the company’s second largest individual market, is facing a protracted downturn with poor visibility on when fundamentals will improve.”
9. Invesco Dorsey Wright Consumer Staples Momentum ETF (NASDAQ:PSL)
5-Year Share Price Performance as of March 25: 38.23%
Ranking 8th on our list of the best defensive ETFs is Invesco Dorsey Wright Consumer Staples Momentum ETF (NASDAQ:PSL). The fund tracks the Dorsey Wright Consumer Staples Technical Leaders Index, which selects companies demonstrating relative strength or momentum. Comprising at least 30 securities from the NASDAQ US Benchmark Index, the index evaluates each security’s performance compared to others in its universe over time. As of March 22, 2024, Invesco Dorsey Wright Consumer Staples Momentum ETF (NASDAQ:PSL) offers a net expense ratio of 0.60%. The ETF was launched on October 12, 2006.
Invesco Dorsey Wright Consumer Staples Momentum ETF (NASDAQ:PSL)’s top holding is e.l.f. Beauty, Inc. (NYSE:ELF). On February 6, e.l.f. Beauty, Inc. (NYSE:ELF) reported its financial results for the quarter ended December 31, 2023. The company announced a non-GAAP EPS of $0.74 and a revenue of $270.9 million, outperforming Wall Street estimates by $0.18 and $31.99 million, respectively.
According to Insider Monkey’s fourth quarter database, 34 hedge funds were long e.l.f. Beauty, Inc. (NYSE:ELF), same as the prior quarter.
Like PepsiCo, Inc. (NASDAQ:PEP), Costco Wholesale Corporation (NASDAQ:COST), and The Procter & Gamble Company (NYSE:PG), e.l.f. Beauty, Inc. (NYSE:ELF) is one of the top defensive stocks to buy.
Artisan Small Cap Fund stated the following regarding E.l.f. Beauty, Inc. (NYSE:ELF) in its fourth quarter 2023 investor letter:
“We initiated new GardenSM positions in IPG Photonics, MYR Group and E.l.f. Beauty, Inc. (NYSE:ELF) during the quarter. elf Beauty is a cosmetics company focusing on a low price strategy, sizeable social media presence and rapid speed to market. In the core business, it aims to replicate existing prestige products at a lower price along with recognizing new and emerging trends. It currently has around 10% market share of US cosmetic market across its key brands. We believe the company will continue to grow market share in the US and leverage social media to expand into new markets, such as Western Europe as well as India and Latin America. Furthermore, we believe the company has growth potential within its skincare business, where its recent acquisition of Naturium will benefit from elf’s innovative distribution model.”
8. Vanguard Consumer Staples Index Fund ETF Shares (NYSE:VDC)
5-Year Share Price Performance as of March 25: 38.96%
Vanguard Consumer Staples Index Fund ETF Shares (NYSE:VDC) is a passively managed fund that aims to mirror the performance of a benchmark index representing the investment return of consumer staples sector stocks. The ETF was launched on January 26, 2004. As of February 29, 2024, Vanguard Consumer Staples Index Fund ETF Shares (NYSE:VDC)’s total assets stood at $7.7 billion, along with a portfolio of 104 stocks and an expense ratio of 0.10%. It is one of the best defensive ETFs to buy.
Costco Wholesale Corporation (NASDAQ:COST) is one of the top holdings of Vanguard Consumer Staples Index Fund ETF Shares (NYSE:VDC). On March 7, Costco announced financial results for the first 24 weeks of fiscal 2024, ending February 18, 2024. The company reported a non-GAAP EPS of $3.71, beating market estimates by $0.07, and a revenue of $58.44 billion, missing Street expectations by $690 million.
According to Insider Monkey’s fourth quarter database, 57 hedge funds were long Costco Wholesale Corporation (NASDAQ:COST), compared to 65 funds in the prior quarter.
Madison Sustainable Equity Fund stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its fourth quarter 2023 investor letter:
“Costco Wholesale Corporation (NASDAQ:COST) reported solid holiday results and announced a special dividend of $15 per share. Earnings were better than expected driven by better gross margin. Same store sales were 3.9% with solid traffic. Costco also noted better discretionary trends and solid seasonal sales.”
7. Fidelity MSCI Consumer Staples Index ETF (NYSE:FSTA)
5-Year Share Price Performance as of March 25: 39.10%
Fidelity MSCI Consumer Staples Index ETF (NYSE:FSTA) aims to match the performance, before fees and expenses, of the MSCI USA IMI Consumer Staples 25/50 Index. This index is weighted by market capitalization and covers the large, mid, and small-cap segments of the US consumer staples sector. Fidelity MSCI Consumer Staples Index ETF (NYSE:FSTA) is one of the best defensive ETFs to invest in. As of December 31, 2023, the fund’s assets amounted to $1,061.5 million, and its portfolio consisted of 108 stocks, along with an expense ratio of 0.084%.
The Coca-Cola Company (NYSE:KO) is the largest holding of Fidelity MSCI Consumer Staples Index ETF (NYSE:FSTA). On February 15, The Coca-Cola Company (NYSE:KO) declared a $0.485 per share quarterly dividend, a 5.4% increase from its prior dividend of $0.460. The dividend is payable on April 1, to shareholders on record as of March 15.
According to Insider Monkey’s fourth quarter database, 62 hedge funds held stakes in The Coca-Cola Company (NYSE:KO), compared to 57 funds in the last quarter.
Hayden Capital made the following comment about The Coca-Cola Company (NYSE:KO) in its third 2023 investor letter:
“It’s not just emerging markets either, where one could argue a “scarcity premium” given fewer quality public companies. Even in the US, The Coca-Cola Company (NYSE:KO) trades at ~30x P/E despite having the same earnings as 10 years ago.
Both of these companies actually have lower revenues than 10 – 15 years ago too, indicating that their profit growth is mostly from margin expansion. This can only last for so long before there’s no more excess expenses left to cut.
I find it ironic that all these companies trade as “bond-equivalents” in the minds of investors – even commanding lower yields than US treasuries, the safest security in the world. But it’s clear that their businesses are not nearly as safe. Coca-Cola is facing disruption risk from consumers shifting to new, healthier beverage brands.
But these companies are ~35% more expensive than US Treasuries, despite the heightened risk. On a risk-adjusted basis, one could argue the implied premium is even higher.”
Perhaps the explanation is simply the price volatility difference between these stocks and treasuries over the last two years. For example, 10-year Treasury bonds are down ~-20% since the beginning of 2022. By comparison, KO and PG are remarkably down only -4 – 6% over that time frame.”
6. Invesco S&P SmallCap Consumer Staples ETF (NASDAQ:PSCC)
5-Year Share Price Performance as of March 25: 45.77%
Invesco S&P SmallCap Consumer Staples ETF (NASDAQ:PSCC) tracks the S&P SmallCap 600 Capped Consumer Staples Index, investing primarily in small-capitalization US consumer staples companies. The index measures the performance of US consumer staples companies primarily engaged in providing non-cyclical consumer goods and services such as tobacco, textiles, food and beverage, and non-discretionary retail. Invesco S&P SmallCap Consumer Staples ETF (NASDAQ:PSCC) ranks 5th on our list of the best defensive ETFs. As of March 22, 2024, the fund holds a portfolio of 30 stocks, featuring an expense ratio of 0.29%.
WD-40 Company (NASDAQ:WDFC) is the top holding of Invesco S&P SmallCap Consumer Staples ETF (NASDAQ:PSCC). The company develops and sells maintenance products, homecare, and cleaning products globally. On March 19, WD-40 Company (NASDAQ:WDFC) declared a quarterly dividend of $0.88 per share, in line with previous. The dividend is payable on April 30, to shareholders on record as of April 19.
According to Insider Monkey’s fourth quarter database, 23 hedge funds were long WD-40 Company (NASDAQ:WDFC), up from 15 funds in the last quarter.
Diamond Hill Capital made the following comment about WD-40 Company (NASDAQ:WDFC) in its Q3 2022 investor letter:
“WD-40 Company (NASDAQ:WDFC) markets a range of maintenance products, and homecare and cleaning products. We believe investors have unrealistic expectations about the company’s ability to grow its revenue base enough to justify its valuation, and the company is likely to be less resilient as COVID-related tailwinds to its business subside. In Q3, shares of WD40 traded down on a weak earnings report that showed falling revenues as the company is also challenged by cost pressures.”
Click to continue reading and see 5 Best Defensive ETFs To Buy For Plunging Markets.
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Disclosure: None. 14 Best Defensive ETFs To Buy For Plunging Markets is originally published on Insider Monkey.