Shelter Your Portfolio In Consumer Staples With Food, Clothing And Stellar Returns

This article was written with Oliver Pursche, the Co-Portfolio Manager of GMG Defense Beta Fund. It was part of a series of articles developed under an agreement with to work with a variety of contributors and assist them in delivering actionable investment ideas each week. The site, is one of the top 500 sites in the world with nearly 10 million subscribers and nearly 100 million page views a month.

Remember the Apple maps fiasco? It released a less than perfect app that sent the media into a frenzy and gave Google maps a real or perceived edge.

Then there was the Facebook IPO that the digerati cast as anathema to the company’s “brand” (though truthfully, I’ve always had trouble seeing a financial transaction as a “branding event”).

As an investor, it’s sometimes hard to figure out what all this means and where the money is, or where it’s going. Really, who knows?

But I know this: People get up every morning, they get dressed, they eat breakfast, they go to work, they take breaks, they go home, they go to sleep, and that every one of these activities is an economic event that positively impacts companies in the S&P Consumer Staples sector.

And how. So far this year, the Consumer StaplesSelect Sector SPDR ETF (XLP)—which mimics the index—has been on a tear with a year-to-date and one year performance of 14.6% and 20.3% respectively. That’s a lot of alpha over the broad S&P (SPDR S&P 500 ETF) performance of 10.6% year-to-date and 13.8% over the past year.

I don’t think the run is over.

Some of the larger names in the sector are so familiar that their ubiquity obscures just how much cash they are throwing off and what great investments they are. These include names like Clorox, Walgreen’s and PepsiCo (PEP). What companies and others like them demonstrate is how the combination of growing sales, earnings and dividends create compelling total returns.

It’s little surprise then that for our Dividend Buster’s portfolio, for which I select the investments along with others at my firm, fully 25% of the names are in the consumer staples sector. For this portfolio we’ve added one other element: share buybacks.

Four consumer staples names from this portfolio worth looking at that have been growing their sales, earnings and dividends, and have share buybacks are McDonald’s (MCD), TJX Companies (TJX), Darden Restaurants (DRI) and General Mills (GIS).

Looking at a 10-year chart for any of these companies is at once amazing, compelling and perhaps a little disheartening. You might think you’ve missed the boat. I don’t think so however, as every day the sun rise offers these companies to fatten their coffers and yours.

On another note . . . I learned to my shock and chagrin this week that, because of something called Regulation E from the Federal Deposit Insurance Corporation (FDIC) business, non-profit and trust bank accounts are not subject to same protection that individual accounts are when it comes to cyber theft.

This means if you open your business checking account and notice that, say, $25,000 has gone vamoose, your bank manager will ultimately tell you, “I’m very sorry, but your money is gone, and there is no source of reimbursement from the FDIC or us.”

There is however a new form of insurance you can purchase from Radnor, PA-based Commercial Deposit Insurance Agency that will protect you. And it’s cheap too. One hundred dollars will get you $10,000 of protection and $178 will get you $50,000 of protection. (Oddly, in the upside down world of insuring obscure risks, $105 will get you $20,000 of protection. Go figure.)

Founder Marc Kramer, who says he pays claims within a week, adds that if you get hacked you’re going to need money quickly. “The fees for bouncing checks from the issuing and receiving bank start to add up quickly, and you’ve got lots of people angry with you. You can smooth a lot of things over by making amends quickly.”

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