Fund Managers Appear To Be Hedging Their XLP Exposure

stock market news

Today in our ETF/Index options recap we speak about some downside put activity in the out-performing XLP (SPDR Consumer Staples Select Sector, Expense Ratio 0.14%, $9.2 billion in AUM), which has outpaced the S&P 500 by nearly 200 basis points year-to-date.

We have seen some action in the September 56 strike puts, which are out-of-the-money clearly with XLP trading north of $57 presently. With a VIX in the $10 range, this kind of activity makes sense from a portfolio manager’s perspective in order to lock in gains, especially for longer term or tactical sector holders of this ETF, given the nice performance.

With thirty-eight names in the portfolio, XLP is the largest “Consumer Staples” ETF in the U.S. listed landscape at over $9 billion in assets under management, putting it nearly three times bigger than the second fund in the segment VDC (Vanguard Consumer Staples, Expense Ratio 0.10%, $3.7 billion in AUM) .

Fund flows have been rather dormant for XLP year-to-date, only attracting a net of about $63 million during this time frame, while VDC has reeled in slightly more at over $157 million. IYK (iShares U.S. Consumer Goods, Expense Ratio 0.44%, $668 million in AUM) and FXG (First Trust Consumer Staples AlphaDEX, Expense Ratio 0.61%, $578 million in AUM) are also notable names in the space that sector managers who run tactical portfolios will often use when over-weighting the sector, and clearly in 2017 that has been a profitable trade thus far.

Top holdings in XLP are as follows: 1) PG (11.37%), 2) PM (9.47%), 3) KO (8.93%), 4) MO (6.67%), and 5) WMT (6.07%).

Given the presence of put buyers in this ETF recently, we cannot help but look at some “Bear” plays in the sector, and we note that these funds are extremely small in terms of visibility and asset sizes as they are simply not typically utilized by anyone in any significant way. We are speaking about SPLZ (Direxion Daily Consumer Staples Bear 1X, Expense Ratio 0.60%, $2.3 million in AUM) and SZK (ProShares UltraShort Consumer Goods, Expense Ratio 0.95%, $1.7 million in AUM), which could possibly see an uptick in trading interest if there is any presence of weakness in the Consumer Staples sector a couple months out.

We point out that the September options here in XLP capture the next earnings cycle in the sector too, with PG for example reporting quarterly earnings on 7/26 and PM reporting 7/20 for instance. This could very well be a catalyst for the recent options trading in the name as well.

XLP-2017-07-06

The Consumer Staples Select Sector SPDR ETF (NYSE:XLP) was trading at $57.20 per share on Tuesday afternoon, down $0.13 (-0.23%). Year-to-date, XLP has gained 10.62%, versus a 9.00% rise in the benchmark S&P 500 index during the same period.

XLP currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #2 of 45 ETFs in the Consumer-Focused ETFs category.


Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.