Grandma Should Invest In Sectors She Uses: Health Care And Staples

Grandma Should have Health Care And Staples heavy portfolio

In pre-deregulation days, Utility stocks were recommended for grandmas and widows. My recent article on the Utilities Select Sector SPDR ETF poked holes in that being the safest sector now.

This article reviews two sectors that might be better for risk-averse investors: Healthcare represented by the XLV ETF, or Consumer Staples represented by the XLP ETF.

Peter Lynch advised a strategy of investing in what you know. For older Americans, the stocks in both XLV and XLP probably make up a high percentage of their spending.

I give XLV a Very Bullish rating and XLP a Bullish rating for investors looking to less risky sectors to invest part of their retirement portfolio. Both have supporting demographics.

iQoncept/iStock via Getty Images Introduction

Henry Ford used to say, “You can buy a Model T in any color you want as long as it is black!” I am old enough to remember AT&T (NYSE: T ) could have said the same thing about the hard-wired, dial telephone they would charge a fortune to install in your house. Regulators allowed them and your local power company to be service monopolies, so you had no choice, and the cost proved it. You could call grandma on the other coast for $1.00 per minute, or wait until after 7pm when rates when down. This “perfect” world allowed these companies to earn a decent return on their assets and pay handsome dividends. Perfect stocks for grandma and widows, they said.

That all changed with deregulation and the split-up of Ma Bell into seven regional telephone companies. Many states followed up by allowing outside power companies to register and sell their electricity or natural gas within their borders. While this benefited consumers with choice and lower prices (mostly), the near-guaranteed returns of all types of utility companies suffered. Today, AT&T isn’t even classified in the Utility sector of the market. It is considered Communication Services.

While the Utilities Select Sector SPDR ETF (NYSEARCA: XLU ) has provided almost 4% growth in payouts over the past ten years, the sector has had the third-worst CAGR over the same time frame. I covered XLU recently , which then prompted me to review the Health Care Select Sector SPDR ETF (NYSEARCA: XLV ) and the Consumer Staples Select Sector SPDR ETF (NYSEARCA: XLP ) as possibly better sectors for conservative investors like people assume grandmas and widows are. I give XLV a Very Bullish rating and XLP a Bullish rating for investors looking to less risky sectors to invest part of their retirement money in. Both sectors have dynamic demographic factors going forward. Health Care Select Sector SPDR ETF Review

Data by YCharts Seeking Alpha describes this ETF as The fund invests in public equity markets of the United States. The fund invests in stocks of companies operating across health care sectors. It invests in growth and value stocks of companies across diversified market capitalization. It seeks to track the performance of the Health Care Select Sector Index . XLV dates back to 1998. XLV has $13.5b in assets and provides investors with a 1.37% yield. SSGA Funds Management charges 12bps in fees. This sector is about 13% of the S&P 500 weight.

I will start by covering the rules used by the Health Care Select Sector Index . Basically, the Index includes every S&P 500 company that is assigned a Global Industry Classification Standard (GICS®) code of 35. That includes companies from the following industries: Equipment & Supplies, Providers and Services, Health Care Technology, Biotech, Pharmaceuticals, and Life Science. Index Rules

Important facts about the Index include:

> The rebalancing reference date is the second Friday of March, June, September, and December.

If any company’s weight is greater than 24%, the company’s weight is capped at 23%. Excess weight is then distributed across the index’s other components.

The sum of the companies with weights greater than 4.8% cannot exceed 50% of the total index weight. Companies are ranked in descending order of their market cap. The first company that causes the 50% limit to be breached has its weight reduced to 4.5%.

Holdings review

The ETF is well disbursed across all industry segments except for Health Care Technology, which has only one company, Cerner ( CERN ). Here is a list of the Top 10 holdings.


These stocks total about 48% of the ETF’s weight, out of a total of 66 stocks held. These are all well known companies to seasoned investors. Using Seeking Alpha’s Portfolio function, we can see […]

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