PBJ: Consumer Staples Scoreboard for September (NYSEARCA:PBJ)

This monthly series of articles includes a dashboard of aggregated industry figures in consumer staples. It is also a review of sector ETFs such as The Consumer Staples Select Sector SPDR® Fund ETF (XLP) and Invesco Food & Beverage ETF (NYSEARCA:PBJ).

Quick order

The next two paragraphs in italics describe the scoreboard methodology. They are necessary for new readers to understand the values. If you are used to this series or if you don’t have time, you can skip them and go to the charts.

Core values

I calculate the median value of five fundamental ratios for each industry: Earnings Return (“EY”), Sales Return (“SY”), Free Cash Flow Return (“FY”), Return on Equity (“ROE”), Gross Margin ( “GM”). The reference universe includes large US listed companies. The five basic values ​​are calculated over the last 12 months. For all, bigger is better. EY, SY and FY are medians of the inverse of Price/Earnings, Price/Sales and Price/Free Cash Flow. They are better for statistical studies than price-to-something ratios, which are unusable or unavailable when the “something” is close to zero or negative (eg, companies with negative earnings). I also look at two momentum metrics for each group: average monthly return (RetM) and average annual return (RetY).

I prefer medians to means because a median divides a set into good half and bad half. A capital weighted average is skewed by extreme values ​​and the largest companies. My stocks are designed for stock picking rather than index investing.

Value and quality scores

I calculate historical baselines for all metrics. EYh, SYh, FYh, ROEh, GMh are denoted respectively and are calculated as averages over an 11-year retrospective period. For example, the value of EYh for food in the table below is the 11-year average of the average earnings yield in food companies.

The value score (“VS”) is defined as the mean % difference between the three evaluation ratios (EY, SY, FY) and their baselines (EYh, SYh, FYh). Similarly, the Quality Score (“QS”) is the average difference between the two quality ratios ((ROE, GM)) and their baselines (ROEh, GMh).

Scores are expressed in percentage points. VS can be interpreted as the percentage of underestimation or overestimation relative to the baseline (positive is good, negative is bad). This interpretation should be taken with caution: the reference line is an arbitrary reference, not an assumed fair value. The formula assumes that the three evaluation values ​​are of equal importance.

Current data

The following table shows values ​​and scores since last week’s close. The columns represent all the data defined above.

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Value and quality chart

The following chart shows the value and quality scores by industry (higher is better).

Evolution from last month

The value score deteriorated across all industries, partly due to price action.

momentum

The following chart shows momentum scores based on median returns.

Interpretation

The consumer staples sector as a whole is close to its 11-year averages in valuation, based on my monthly S&P 500 dashboard. The most attractive industry in terms of value and quality scores is household products, followed by beverages. Personal care and food are slightly overvalued at around 7% from their historical benchmark. Retail and Tobacco are almost at the base level of the rating, but the latter has a terrible quality score.

PBJ: A consumer staples ETF focused on two industries

The Invesco Food & Beverage ETF was launched on 06/23/2005 and tracks the Dynamic Food & Beverage Intellidex℠ Index. It has 32 holdings, a 30-day SEC yield of 1.32% and a total expense ratio of 0.57%, much more expensive than XLP (0.09%).

As described by Invesco, the underlying index

“is designed to provide capital appreciation by thoroughly evaluating companies based on various investment merit criteria, including price momentum, earnings momentum, quality, management action and value.“

PBJ is primarily focused on the food and beverage industry but, according to the prospectus, may include retail, distribution and consumer services companies that provide food and beverage products. The portfolio turnover rate is quite high: 118% in the most recent fiscal year (compared to 17% for XLP).

Since inception, PBJ has outperformed XLP by 171% total return (about 2% annually).

To date, PBJ has outperformed the sector benchmark by almost 14% in 2024:

The portfolio is quite concentrated: the top 10 holdings, listed in the following table, represent 46.3% of the asset value.

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In short, PBJ implements a strategy focused on food and beverage manufacturers and distributors based on momentum and fundamentals. The fund has underperformed the sector benchmark since its inception in 2005, particularly this year. Moreover, XLP is more liquid and has a cheaper fee. Both funds are quite concentrated in top holdings. Investors looking to limit exposure to individual companies may prefer the Invesco S&P 500® Equal Weight Consumer Staples (RSPS) ETF.

Dashboard list

I use the first table to calculate the value and quality scores. It can also be used in a stock selection process to check how companies stack up among their peers. For example, the EY column tells us that a food company with an earnings yield above 0.044 (or price/earnings below 22.73) is in the better half of the industry on this measure. A scoreboard list is sent each month to Quantitative Risk & Value subscribers, with the most profitable companies ranking in the top half of their peers across all three valuation metrics at the same time. The stocks below are part of the list sent to subscribers a few weeks ago.

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It is a rolling model with a statistical bias towards long-term excess returns, not the result of an analysis of each stock.