Which is the Better Consumer Staples ETF?

The State Street Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP) and the Fidelity MSCI Consumer Staples Index ETF (NYSEARCA:FSTA) both target U.S. consumer staples, but XLP is much larger and pays a higher yield, while FSTA offers broader diversification and slightly lower volatility.

Both XLP and FSTA are designed to give investors exposure to the U.S. consumer staples sector, focusing on companies that provide essential products like food, household goods, and personal care items. This comparison examines their cost, performance, risk, and portfolio differences to help investors decide which may better fit a defensive equity allocation.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

Both funds are equally affordable with a 0.08% expense ratio, but XLP’s slightly higher dividend yield may appeal to income-focused investors, and its much larger assets under management could offer greater liquidity.

Performance & risk comparison

Both funds have weathered market downturns similarly over the past five years, with FSTA showing a marginally larger drawdown but slightly higher cumulative growth of $1,000 invested. XLP’s higher assets under management may contribute to its stability, while FSTA’s lower beta suggests it has been a bit less volatile.

What's inside

FSTA tracks the performance of the MSCI USA IMI Consumer Staples 25/50 Index, holding 96 stocks across the consumer defensive, consumer cyclical, and a small slice of industrials sectors. Its top positions are Costco Wholesale (NASDAQ:COST), Walmart (NASDAQ:WMT), and Procter Gamble (NYSE:PG), with the fund in operation for over 12 years. The broader holdings list may offer a touch more diversification, though the bulk of assets are still concentrated in the largest staples companies.

XLP, by contrast, exclusively targets the consumer defensive sector with 36 holdings, also led by Walmart Inc (NASDAQ:WMT), Costco Wholesale Corp (NASDAQ:COST), and Procter Gamble Co. (NYSE:PG). The fund is much larger by assets under management and has no quirks or unusual features, making it a straightforward play on the sector’s biggest names.

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What this means for investors

Consumer staples stocks and ETFs are in higher demand in choppy and volatile markets like the one we are in right now. That’s because they represent companies that are, as the name suggests, staples of our daily lives — things we need whether the economy is good or bad.

These two ETFs are a bit different in their focus. Both seek to capture the returns of consumer staples stocks, but the SPDR offering focuses on large caps while the Fidelity fund casts a wider net, including small- and mid-cap consumer staples stocks. It also has caps to ensure greater diversification.

The added diversification makes the Fidelity ETF a more stable and anchored consumer staples stock as markets shift over time, and that’s probably what investors in such an ETF are looking for. It also has better long-term returns, averaging 6.5% return over the past 10 years compared to 5.9% for the SPDR offering.

As a plus for the SPDR ETF, it does have a slightly better dividend yield.

You really cannot go wrong with either, but the Fidelity ETF stands out as a bit better, mainly because of its greater diversification, which has helped deliver slightly better returns.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.