Targeting the consumer staples sector often appeals to investors seeking a defensive posture, as these companies provide essential goods people buy regardless of the economic climate.
This comparison examines two popular options — the State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) and the Fidelity MSCI Consumer Staples Index ETF (NYSEMKT:FSTA) — that offer slightly different paths to stable, income-generating equity exposure within the same market sector.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
Both ETFs are highly cost-efficient choices for defensive investors, sharing an identical 0.08% expense ratio. This means the decision may hinge on yield and liquidity. Currently, XLP provides a marginally more robust income stream with a higher dividend yield than FSTA.
Performance & risk comparison
What’s inside
XLP targets the consumer staples components of the S&P 500, resulting in a concentrated portfolio of 34 holdings. This provides exposure to established, large-cap companies, and its top holdings include Walmart (NASDAQ:WMT), Costco Wholesale (NASDAQ:COST), and Procter & Gamble (NYSE:PG). Launched in 1998, XLP has paid $2.20 per share in dividends over the trailing 12 months.
FSTA tracks a broader index, offering exposure to 98 holdings. Its largest positions match those of XLP, though each carries a slightly larger weighting within the portfolio. This fund was launched in 2013, and it has paid $1.16 per share in dividends over the trailing 12 months.
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What this means for investors
XLP and FSTA share many similarities. They both offer exposure to the consumer staples sector, and with similar total returns and max drawdown, investors can expect comparable performance and risk profiles between the two.
One key differentiator is diversification. FSTA holds nearly three times as many stocks as XLP, offering access to a wider swath of the consumer staples market. However, it also puts more weight into its top holdings.
While both funds tilt toward Walmart, Costco, and Procter & Gamble, those three stocks account for 34.02% of FSTA’s portfolio, compared with 27.23% for XLP. Over the last five years, that gap hasn’t appeared to have a major impact on risk or total returns. But if those three stocks significantly over- or underperform, it could lead to differences in performance between the two funds.
Both ETFs can be smart choices for those looking for a defensive investment, and with comparable historical performance and risk profiles, these funds share many similarities. The right choice for you will largely depend on the gaps you’re looking to fill in your portfolio.
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Katie Brockman 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.
FSTA vs. XLP: How These Popular Consumer Staples ETFs Compare for Investors was originally published by The Motley Fool