Vanguard Consumer Staples ETF (NYSEMKT:VDC) and State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) offer defensive exposure, but VDC provides broader diversification, while XLP focuses on a narrower group of S&P 500 giants.
These ETFs target the consumer staples sector, which contains companies that produce essential goods like food, beverages, and household items. Because these products remain in demand regardless of economic cycles, these funds often appeal to investors seeking stability and consistent income during periods of market turbulence. Both funds provide exposure to “nondiscretionary” spending, meaning they track businesses that sell products consumers buy even when the economy slows down, offering a defensive layer to a diversified portfolio. For those prioritizing dividend income, these vehicles can serve as reliable foundations within a conservative strategy.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
Their expense ratios are roughly the same (1 basis point is hardly worth quibbling about). The SPDR fund provides a higher trailing-12-month dividend yield of 2.6% compared to the 2.2% offered by its Vanguard counterpart. While both funds are highly liquid, the SPDR fund manages a larger pool of assets under management (AUM) at $13.8 billion, compared to $9.1 billion for the Vanguard fund.
Performance & risk comparison
What’s inside
The SPDR ETF focuses on a concentrated basket of 35 holdings primarily drawn from the S&P 500. It offers targeted exposure to large-cap U.S. companies involved in essential industries like beverages, tobacco, and personal hygiene products. Its largest positions include Walmart (NASDAQ:WMT) at 11.19%, Costco Wholesale (NASDAQ:COST) at 9.19%, and Procter & Gamble (NYSE:PG) at 7.49%. Launched in 1998, XLP has a trailing-12-month dividend payout of $2.75 per share.
In contrast, the Vanguard ETF takes a broader approach with 103 holdings, reaching beyond the S&P 500 to include a wider variety of businesses that supply direct-to-consumer products. These holdings are categorized as nondiscretionary based on typical consumer spending behaviors. Its largest positions include Walmart at 14.49%, Costco at 11.83%, and Procter & Gamble at 8.69%. Launched in 2004, the Vanguard fund has a trailing-12-month dividend payout of $4.82.
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What this means for investors
If we’re being honest, there’s not a lot of daylight between VDC and XLP. The expense ratios are basically the same, and their recent returns and dividend yields are pretty comparable. And I would say their respective AUM aren’t too far apart, either. XLP and VDC share the same top three holdings, though VDC gives a larger allocation to them (35%). In fact, their top 10 stocks are the same, although they differ in terms of weighting.
While VDC does offer increased diversification due to its larger number of holdings, the fund’s performance is driven largely by its top 10 positions, which account for 63% of the portfolio.
One final thing to consider as you pick between these two ETFs is their average trading volume. XLP shares see more than 25 times as much trading volume as VDC. Investors may find that increased liquidity appealing.
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Erin Kennedy has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.
Vanguard vs. State Street: Which Consumer Staples ETF Stands Out? was originally published by The Motley Fool