Tobacco flower. Credit: Taber Andrew Bain via Flickr.

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some consumer-staples companies to your portfolio but don't have the time or expertise to hand-pick a few, the Vanguard Consumer Staples Index Fund ETF (VDC 0.20%) could save you a lot of trouble. Instead of trying to figure out which stocks will perform best, you can use this exchange-traded fund to invest in lots of consumer-staples companies simultaneously.

Why this ETF, and why consumer staples?
By definition, staples are items that we tend to buy no matter what the economy is doing. That makes companies making or selling staples attractive, as they add a defensive element to a portfolio, supporting it in downturns. Consumer staples companies also often offer dividends, in part due to their relatively predictable income streams. This ETF recently yielded 2.1%, and some of its components offer significantly bigger yields.

ETFs often sport lower expense ratios than their mutual fund cousins. This ETF is no exception, with a very low annual fee of 0.14%. It has outperformed the world market over the past three, five, and 10 years.

A closer look at some components
On your own you might not have selected Altria Group Inc (MO 0.86%) or The Procter & Gamble Company (PG 0.65%) as consumer-staples companies for your portfolio, but this ETF recently counted them among its 100-plus holdings.

Altria
Altria faces many challenges, such as rising taxes on tobacco, increased regulations, competition from discount cigarettes, and a shrinking smoker base.

Given those issues, some have preferred to invest in Altria's internationally focused counterpart, Philip Morris International (PM 1.21%). It's viewed as offering more growth potential, as it operates in emerging markets where growing middle classes will smoke more cigarettes. Don't think it doesn't increasing taxes and regulations, though. In England, for example, the British Medical Association recently proposed banning the sale of tobacco to anyone born after 2000. And Philip Morris closed plants in Australia and the Netherlands following increased regulations that hurt sales. The company recently lowered its projections, too, citing, among other factors, currency fluctuations and black market tobacco. It's engaging in big share buybacks that boost EPS, but investors should prefer to see EPS growing due to top-line growth, not buybacks.

Meanwhile, Altria has a big advantage over Philip Morris by being more than a tobacco company. Its businesses include not only regular cigarettes, but also smokeless tobacco, cigars, wine, and a sizable stake in the SABMiller beer company. Altria has also been growing its business consistently despite significant headwinds by cost-cutting, price-hiking, refinancing its hefty debt load, and innovating.

Altria's first quarter featured declining cigarette volume but rising profit margins. The company's stock yields 4.5%, and management has been regularly hiking that payout over the past 44 years. Altria's net margins are well above 20%,  and it generates more than $4 billion in annual free cash flow. With its P/E ratio of 20 above its five-year average, it doesn't appear to be a screaming bargain, but it can still deliver solid income and growth to long-term investors.

Procter & Gamble
Businesses don't get much more dependable than Procter & Gamble, which boasts 25 brands that generate more than $1 billion in sales annually. Think Crest, Gillette, Bounty, Pampers, Oral-B, and Tide.

Procter & Gamble has disappointed investors lately with shrinking revenue and lowered projections due to unfavorable currency exchange rates and slow sales growth. It has struggled in recent years, but it brought back former CEO A. G. Lafley to initiate a turnaround. He has been aggressively cutting costs, selling off some assets (such as its pet foods business, led by its Iams brand), and slowly growing the organic sales growth rate.

With a forward P/E ratio of 18, Procter & Gamble stock is not the most compelling buying opportunity. It's a dividend powerhouse, yielding about 3.2% now, and it has increased its dividend for 58 consecutive years. It's also buying back lots of shares, but when companies do that when stock prices aren't low, they're not serving shareholders well. I wouldn't bet against this deep-pocketed titan gaining traction again, but you might want to wait for a stock-price pullback before buying.

The big picture
It makes sense to consider adding some consumer-staples companies to your portfolio. You can do so easily via an ETF. Alternatively, you might simply investigate its holdings and then cherry-pick from among them after doing some research on your own.