Why the iShares US Consumer Staples ETF Beats this Rival ETF

The iShares US Consumer Staples ETF (NYSEARCA:IYK) stands out for its size and higher recent returns, while the First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG) focuses more narrowly on food and beverage companies, offers a slightly higher yield, and charges higher fees.

Both IYK and FTXG give investors exposure to U.S. consumer staples, but they take different approaches. IYK delivers a broad basket spanning major household names, while FTXG narrows its focus to food and beverage firms, using a smart-beta index to shape its portfolio. This comparison highlights key differences in cost, performance, risk, and portfolio makeup.

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.

IYK is more affordable on fees, charging 0.38% annually versus 0.60% for FTXG, while FTXG offers a slightly higher dividend yield at 2.6% compared to IYK’s 2.4%.

Performance & risk comparison

What's inside

FTXG tracks a smart-beta index focused on food and beverage companies, with 310 holdings and a strong tilt toward consumer defensive stocks (91%). Its top positions include PepsiCo, Inc. (NASDAQ:PEP), Archer-Daniels-Midland Company (NYSE:ADM), and Mondelez International, Inc. (NASDAQ:MDLZ). The fund has a nine-year track record, and its narrower sector focus may appeal to those seeking dedicated exposure to U.S. food and beverage brands.

IYK, by contrast, delivers a broader sweep of the consumer staples sector, covering 58 companies spanning household products, beverages, and tobacco. Major holdings include Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), and Philip Morris International Inc (NYSE:PM). Its sector allocation is diversified across consumer defensive names, healthcare, and basic materials, offering a more balanced exposure within staples.

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What this means for investors

The iShares US Consumer Staples ETF stands out as the better option compared to the First Trust Nasdaq Food & Beverage ETF for a few reasons.

For starters, it encompasses a broader universe of consumer staples stocks, not just those in the more volatile and less diversified food and beverage industries. The iShares ETF tracks the Russell 1000 Consumer Staples RIC 22.5/45 Capped Index, which means it includes mostly large and midcap consumer staples stocks, and it has caps in place to make sure it isn’t too concentrated or top-heavy.

The First Trust ETF also uses screens to ensure growth and diversification. It screens food and beverage stocks within the Nasdaq on four factors: gross income; return on assets; momentum; and cash flow. Then it ranks them by factor scores and weights them by cash flow.

But it is much more of a niche fund, as its smaller size would indicate. It has also fallen short in terms of performance, with a 9.2% total return, with dividend reinvested, over the past year, compared to 16.3% for the iShares ETF. Over the past five years, the iShares ETF has posted an annualized return of 6.9% compared to 1.0% for the First Trust ETF. And, the iShares ETF has a lower expense ratio, so it looks like the better option all around.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.