As an ASX share investor, I’ve always been drawn to the consumer staples sector of the market in my search for market-beating investments. Consumer staples shares offer many things to investors that other companies don’t.
The prime example is the fact these companies make things we need, rather than want. Consumer staples companies typically produce, manufacture, distribute, and sell food, drinks, and household essentials like laundry powder and dishwashing detergent. Companies that produce alcohol and tobacco products are also included.
This inherent quality makes ASX consumer staples shares intrinsically defensive. That means these companies can survive and even thrive in adverse economic conditions, like a recession.
But not just recessions. Consumer staples shares also have built-in protection against inflation. These companies can raise the prices of the products and services they sell with far more impunity than most, safe in the knowledge that there are few alternatives to eating, drinking, and washing the dishes.
But unlike other defensive assets like gold or bonds, ASX consumer staples shares also have the potential to consistently beat the broader market over long periods of time when it comes to returns. Or at least the share I’ve bought has.
Why I love ASX consumer staples shares and this ETF
Well, share isn’t exactly the right term. The iShares Global Consumer Staples ETF (ASX: IXI) is actually an exchange-traded fund (ETF). It holds a basket of global and ASX consumer staples shares within it, which currently number just under 100 individual companies.
Most of these underlying holdings are household names. There’s the ASX’s own Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) for one. But the IXI portfolio also includes Coca-Cola Co, PepsiCo, Nestle, Procter & Gamble, Walmart, L’Oreal, Mondelez, Philip Morris International, Colgate-Palmolive and Campbell Soup.
Chances are that most Australians have at least one of these companies’ products in their home right now. It could be Procter & Gamble’s Fairy dishwashing liquid, or perhaps one of Mondelez’s Cadbury bars. Or maybe a can or two of Pepsi, bars of Palmolive soap, or some of Nestle’s Uncle Toby’s oats.
You get the picture. These are the kinds of products that people tend to buy, economic rain, hail, or shine. And that’s why I love ASX consumer staples shares and, by extension, this ETF.
But all of this means nothing if this investment can’t bring home the bacon in terms of performance. Luckily for its investors, the iShares Global Consumer Staples ETF has been a convincing market beater in recent years.
Let’s take a generic market-mirroring index fund like the iShares Core S&P/ASX 200 ETF (ASX: IOZ). This fund has returned an average of 7.07% per annum over the five years to 30 June 2023 (including dividend returns), and 8.37% per annum over the past ten.
In contrast, IXI units have delivered an average performance of 8.85% per annum over the past five years, and 10.06% per annum over ten.
This comprehensively proves the value of ASX consumer staples shares, and why I’ve been buying this ETF for my share portfolio.
