If we have a recession and the stock markets fall, consumer staples would be a classic defensive sector for investors.
But which stocks would you buy? Shares of Loblaw Cos. Ltd. (L-T) and Dollarama Inc. (DOL-T) have been sector leaders lately, while Empire Co. Ltd. (EMP.A-T) Alimentation Couche-Tard Inc. (ATD-T) have been laggards and Metro Inc. (MRU-T) has been a middling performer. A compromise solution: Buy all of them.
The Global X Equal Weight Canadian Groceries & Staples Index ETF (MART-T) is part of a new suite of exchange-traded funds that offer a third way for investors who don’t want to pick stocks in a sector and don’t want to – or can’t – buy into the sector through an index-tracking ETF.
MART’s assets are split more or less evenly between five sector heavyweights. It’s a more focused approach than investing in the broad sector as represented in the iShares S&P/TSX Capped Consumer Staples Index ETF (XST-T).
XST’s 10 holdings include the five stocks mentioned just above, plus George Weston Ltd. (WN-T), Saputo Inc. (SAP-T), Premium Brands (PBH-T), North West Co. Inc. (NWC-T), Maple Leaf Foods Inc,. (MFI-T) and Jamieson Wellness Inc. (JWEL-T). If you want a traditional indexing experience, XST could be your pick. MART is for investors who want just the meat of the index.
The idea of ETFs holding big names in a sector rather than the entire index has been around for a while in the form of funds holding shares of the big banks. Global X has one of those - the Global X Equal Weight Canadian Banks Index ETF (HBNK-T), with assets of $945-million. In addition to MART, Global X’s latest additions include the Global X Equal Weight Canadian Insurance Index ETF (SAFE-T) and the Global X Equal Weight Canadian Telecommunications Index ETF (RING-T). Cute tickers, by the way.
MART’s management fee is 0.25 per cent – expect something a bit higher for the more definitive management expense ratio. That’s in line with comparable products holding just a few companies and a bargain compared to the bizarrely expensive 0.61-per-cent MER for XST.
Indexing is taking the market, or sector, as it comes and not attempting to guess the best performers. But there may not be a huge performance gap between certain indexes and their biggest individual holdings. HBNK made a bit under 44 per cent for the 12 months to Oct. 31, compared to 44.8 per cent for the iShares S&P/TSX Capped Financials Index ETF (XFN-T). XFN holds 27 stocks, compared to six for HBNK.