(Reuters) - The consumer staples index .SPLRCS, the S&P 500’s biggest laggard for 2018, could have further to fall and may even look less appealing as a defensive play in the event the economy turns sour.
The sector, which includes suppliers of so-called recession-proof items ranging from toilet paper and toothpaste to canned soup and cookies, has fallen 13 percent in 2018, on track for its first annual decline since 2008, while the S&P 500 .SPX is up 1.7 percent year-to-date.
Investors have been turning away from staples companies because they are grappling with changing consumer preferences, fierce competition and other obstacles to raising prices even as their costs swell.
On top of this, the sector - long viewed as a defensive play partly because of its high dividends and predictable growth rate - faces tough competition from fixed income investments while U.S. Treasury yields are rising, and from other equities as most industry groups are generating faster earnings growth.
“We think the sector will remain under pressure, especially as investors have better opportunities elsewhere,” said Sameer Samana, global equity and technical strategist at Wells Fargo Investment Institute in St. Louis.
Consumers are showing less loyalty to food and household brands than ever before, according to Burns McKinney, a portfolio manager at Allianz Global Investors in Dallas. As a result shoppers are more easily drawn toward cheaper store-brands for goods such as toilet paper, putting pressure on brand names.
A growing preference for healthier, fresher food is keeping people away from pre-packaged staples. Health concerns are also hurting tobacco companies such as Altria (MO.N) as smokers increasingly favor cigarette
