I once went to a dentist who used his own purchases to completely direct his share market investments.
If he bought electricity and gas from Origin Energy (ASX: ORG), he would own shares in them as well.
The same went for Coles (ASX: COL), Woolworths (ASX: WOW), Westpac (ASX: WBC) and many other companies that he dealt with, with the argument being that if he was regularly pumping money into these companies, it made sense to also own some of them.
There was some sense to the argument, too, because companies that deal in everyday items generally have very stable cash flows and solid profits.
My argument against the dentist’s approach – which I didn’t state too forcefully given that he was scratching around on my teeth at the time – was that he would have to buy a lot of small share parcels to represent his spending and that he would only be exposed to Australian companies.
iShares answers the dentist’s prayers
Many years later and a highly modified and much improved version of the dentist’s profit extraction plan has been released in the form of the iShares Global Consumer Staples ETF (ASX: IXI).
The simple idea behind this exchange traded fund is that in a highly uncertain economic environment, with ultra-low interest rates and a still running pandemic, being exposed to companies that supply consumer staples could be a good idea.
Companies that provide consumer staples have stable cash flows
Unlike my former dentist, this ETF shops all around the world for companies that supply consumer staples such as food, drinks, household essentials, medications and hygiene supplies.
It also invests heavily outside Australia, with just over half of the companies it owns based in the United States.
That doesn’t really matter because most of these companies are global giants that supply consumers around the world.
Many other countries are also covered with companies from the United Kingdom, Europe, Japan, Canada and even Australia also represented in this ETF.
Strong performance from global giants
Many of the entities in the consumer staples are well known and logical such as Procter & Gamble, Nestle, Coca-Cola, Walmart, PepsiCo, Colgate-Palmolive, our very own Woolworths and L’Oreal.
British American Tobacco was a surprise – although I suppose tobacco is something of a consumer staple.
Just as my former dentist thought, this global basket of consumer staple companies has performed very strongly and is likely to continue doing so even if the economy hits some more heavy bumps.
In simple terms, people still need to eat and survive and even buy life’s little luxuries whatever happens, so there should be a lot of resilience built into this portfolio.
In the past year, the iShares Global Consumer Staples ETF returned 20.24% and it has averaged a 13.2% return for the past three years and 13.14% over the past 10 years.
Dividends are also reasonable given the predominance of US stocks that are not known for paying much in the way of dividends with a trailing yield of 1.91% over the past 12 months.
Management fees are fairly reasonable at 0.46% a year – a rate of extraction that even my former dentist should be happy with.