Thoughts on consumer staples funds?

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Jesteroftheswamp
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Thoughts on consumer staples funds?

Post by Jesteroftheswamp » Thu Oct 18, 2018 11:36 pm

I know people call consumer staples funds “defensive”, and I am interested in hearing your thoughts on them. I have a small percentage of my portfolio in Vanguard Consumer Staples ETF. How do these typically perform historically? Are they typically negatively correlated with funds such as Vanguard Total Stock Market Index? What is the general consensus, here at Bogleheads, on these types of funds?

HEDGEFUNDIE
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Re: Thoughts on consumer staples funds?

Post by HEDGEFUNDIE » Fri Oct 19, 2018 3:31 am

Bogleheads don’t buy sector funds.

lack_ey
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Re: Thoughts on consumer staples funds?

Post by lack_ey » Fri Oct 19, 2018 3:47 am

Jesteroftheswamp wrote:
Thu Oct 18, 2018 11:36 pm
How do these typically perform historically?
As stocks, but mostly lower beta, a bit less risk and probably less return.
Jesteroftheswamp wrote:
Thu Oct 18, 2018 11:36 pm
Are they typically negatively correlated with funds such as Vanguard Total Stock Market Index?
Extremely not. If you have some kind of simplified mental model of "does something different" then no, it's (while still being oversimplified) closer to "does mostly similar things, just with lower magnitude." Again, there's more to it than that but let's say a correlation around say 0.8 (depends exactly how you measure it) is not negative. Not even remotely close, so bad that it needs to be called out like five times.
Jesteroftheswamp wrote:
Thu Oct 18, 2018 11:36 pm
What is the general consensus, here at Bogleheads, on these types of funds?
If you want to reduce risk and expected return, why not just own less stocks? Or if you really insist on stocks while still wanting to turn some knobs for better or worse, some kind of defensive / low beta / low volatility-oriented fund rather than a specific sector?

Unless it's the sector specifically you want for some reason, why use it as a proxy for something else, when you could get something else that's closer to what you want (if that is indeed the case)?

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JoMoney
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Re: Thoughts on consumer staples funds?

Post by JoMoney » Fri Oct 19, 2018 3:58 am

Vanguard's Consumer Staples fund (VDC) has more than 20% of it's holdings in 2 stocks, and more than 60% in it's top 10 stocks.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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SpringMan
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Re: Thoughts on consumer staples funds?

Post by SpringMan » Fri Oct 19, 2018 4:04 am

HEDGEFUNDIE wrote:
Fri Oct 19, 2018 3:31 am
Bogleheads don’t buy sector funds.
Many Bogleheads invest in Vanguard's REIT fund.
Best Wishes, SpringMan

Valuethinker
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Re: Thoughts on consumer staples funds?

Post by Valuethinker » Fri Oct 19, 2018 5:20 am

SpringMan wrote:
Fri Oct 19, 2018 4:04 am
HEDGEFUNDIE wrote:
Fri Oct 19, 2018 3:31 am
Bogleheads don’t buy sector funds.
Many Bogleheads invest in Vanguard's REIT fund.
REITs are not the same as ordinary stocks. They are more akin to MLPs in fact.

I had a post yesterday on the differences if you search my name and posts last 24 hours.

Jesteroftheswamp
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Re: Thoughts on consumer staples funds?

Post by Jesteroftheswamp » Fri Oct 19, 2018 10:53 am

lack_ey wrote:
Fri Oct 19, 2018 3:47 am
Jesteroftheswamp wrote:
Thu Oct 18, 2018 11:36 pm
How do these typically perform historically?
As stocks, but mostly lower beta, a bit less risk and probably less return.
Jesteroftheswamp wrote:
Thu Oct 18, 2018 11:36 pm
Are they typically negatively correlated with funds such as Vanguard Total Stock Market Index?
Extremely not. If you have some kind of simplified mental model of "does something different" then no, it's (while still being oversimplified) closer to "does mostly similar things, just with lower magnitude." Again, there's more to it than that but let's say a correlation around say 0.8 (depends exactly how you measure it) is not negative. Not even remotely close, so bad that it needs to be called out like five times.
Jesteroftheswamp wrote:
Thu Oct 18, 2018 11:36 pm
What is the general consensus, here at Bogleheads, on these types of funds?
If you want to reduce risk and expected return, why not just own less stocks? Or if you really insist on stocks while still wanting to turn some knobs for better or worse, some kind of defensive / low beta / low volatility-oriented fund rather than a specific sector?

Unless it's the sector specifically you want for some reason, why use it as a proxy for something else, when you could get something else that's closer to what you want (if that is indeed the case)?
Don’t consumer staples stocks perform well as the general stock market tanks?

bloom2708
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Re: Thoughts on consumer staples funds?

Post by bloom2708 » Fri Oct 19, 2018 10:57 am

I think it is fine to own consumer staples. The market cap weight is included in the Total US Stock index.

I don't think you need to buy more consumer staples than what the market indicates daily.

If you think about any sector fund (a thin slice of the total market) this strategy works. No need to buy more of the slice if you already own the market.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

FoolMeOnce
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Re: Thoughts on consumer staples funds?

Post by FoolMeOnce » Fri Oct 19, 2018 11:00 am

Since VDC began, it has moved up and down pretty much exactly when the total stock market, VTI, does. I don't know how to embed images, but you can see here:

https://www.portfoliovisualizer.com/fun ... F18%2F2018

ThrustVectoring
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Re: Thoughts on consumer staples funds?

Post by ThrustVectoring » Fri Oct 19, 2018 12:05 pm

lack_ey wrote:
Fri Oct 19, 2018 3:47 am
If you want to reduce risk and expected return, why not just own less stocks? Or if you really insist on stocks while still wanting to turn some knobs for better or worse, some kind of defensive / low beta / low volatility-oriented fund rather than a specific sector?
A smaller stock allocation is definitely the first line of what to do with your portfolio. If you think low beta will outperform - and there is very good theory backed by quantitative data predicting this - then that belief implies increasing your allocation (possibly using leverage) to target the same overall risk levels. Also this theory implies futzing with the bond market (using short-term treasury futures) before the stock side, too.
Current portfolio: 60% VTI / 40% VXUS

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