Is Investing in a Consumer Staples ETF the Safe Option Right Now?

Inflation has been coming down this year but it still isn’t around the 2% levels that fed officials want. And that means there’s still the possibility for more interest rate hikes in the future. It’s not a great situation to be in for investors as it means that there are more potential headwinds out there for investors and the stock market.

One way investors may be tempted to hedge is by investing in consumer staples. These are businesses that provide people with products and services that are necessary on a daily basis and thus, should generate good, consistent demand, regardless of what’s happening with the economy.

An exchange-traded fund (ETF) that gives investors to this area of the company is the Vanguard Consumer Staples Fund (NYSE Arca:VDC).The fund gives exposures to a wide range of sectors within retail, including merchandise retail, which accounts for 20% of the ETF’s total weight. Soft drinks and beverages account for another 20%, and household products are also a significant part at 19%.

Many of the holdings in the ETF are some of the biggest consumer brands in the world, with Procter & Gamble (NYSE:PG) accounting for nearly 13% all on its own. Coca-Cola (NYSE:KO) and Costco Wholesale (NASDAQ:COST) are other big names and key holdings in the fund.

Unfortunately, as investors have been picking high-flying growth stocks this year, consumer staples have taken a backseat. Year to date, the Vanguard ETF is down 8%. But over the past five years, it has risen by close to 30%. This can be a good hedge against weakening economic conditions but investors should be careful not to expect too much from this ETF, as large gains aren’t likely.