Energy-oriented exchange-traded funds (ETFs) have been among the top performers in 2022 as a result of rising commodity prices. But heading into 2023, that may not necessarily be the case as the price of oil has been falling in recent months.
A safer approach may be to invest in consumer staples, in businesses that sell essential products that are relatively resilient to inflation and that should remain in strong demand regardless of what takes place in the economy this year. One fund to consider is the Consumer Staples Select Sector SPDR Fund (NYSE Arca: XLP), which pays a yield of 2.4% -- better than the S&P 500 average of around 1.8%. Plus, it holds many top consumer goods stocks, including Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), and PepsiCo (NASDAQ:PEP). With 33 holdings, it isn't overly diversified but the stocks that it holds are large and safe businesses.
The fund focuses on industries that are largely involved in making food, beverages, and household products – essentials that should make the businesses relatively stable. In 2022, the fund didn't achieve great returns and was down 4%, but that's still better than the S&P 500, which has declined 20% over the same stretch. Over the past five years, the ETF has risen 30% in value and its total returns (including dividends) have totaled 49%.
With a low expense ratio of only 0.10%, the ETF doesn't cost much and can give investors an easy way to diversify. Investing in the fund can be a good option for risk-averse investors looking to collect a safe dividend this year.
