The Consumer Staples Select Staples Fund (XLP) Offers Higher Yield While Fidelity MSCI Consumer Staples Index ETF (FSTA) Holds More Stocks

Both the Fidelity MSCI Consumer Staples Index ETF (FSTA +0.43%) and The Consumer Staples Select Sector SPDR Fund (XLP +0.41%) aim to track the performance of leading U.S. consumer staples companies.

While their sector focus is similar, they differ in portfolio breadth, size, and yield, making this a nuanced comparison for investors interested in defensive equities.

Snapshot (cost & size

FSTA's beta is 0.67, while XLP's is 0.62 -- meaning both funds are less volatile than the broader market.

Beta measures price volatility relative to the S&P 500; figures use five-year weekly returns.

Both funds are priced identically on expenses, but XLP stands out with a higher payout.

This higher yield may appeal to those seeking liquidity or a slightly stronger income profile.

Performance & risk comparison

What's inside

The Consumer Staples Select Sector SPDR Fund (XLP) delivers targeted exposure to the U.S. consumer staples sector, covering household products, food, beverages, tobacco, and personal care.

With 37 holdings and nearly 27 years of history, its top positions include Walmart (WMT +0.71%), Costco Wholesale (COST +1.37%), and Procter & Gamble (PG 0.63%).

It is strictly focused on consumer defensive stocks.

Fidelity MSCI Consumer Staples Index ETF (FSTA) takes a broader approach, tracking the MSCI USA IMI Consumer Staples 25/50 Index and holding 104 stocks.

It also centers on consumer defensive companies but includes a few consumer cyclical and industrial names.

Its top holdings -- Costco Wholesale, Walmart, and Procter & Gamble -- are similar to XLP, but FSTA holds more positions than XLP.

For more guidance on ETF investing, check out the full guide at this link.

Foolish take

XLP and FSTA hold the same stocks as their top ten holdings. However, in FSTA's case, its top five holdings make up more than 50% of its portfolio allocation, while XLP is less top-heavy.

Thanks to these very similar holdings, it's not shocking that FSTA and XLP have generated nearly identical total returns of 160% and 153% since 2013, respectively.

Ultimately, if I had to choose one of these ETFs, I would lean towards XLP. Not only is its 2.9% dividend yield higher than FSTA's 2.3% payout, but XLP has grown its dividend payments at a faster rate.

Over the last decade, XLP has increased its dividends by 5% annually, whereas FSTA's payments have only inched higher by 3% each year.

Regardless, both ETFs have large portfolio allocations dedicated to Walmart, Costco, Procter & Gamble, and Coca-Cola (KO +1.01%), so if you are opposed to any of those four stocks, these may not be the ETFs for you.

Glossary

Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Dividend yield: The annual dividends paid by a fund or stock, expressed as a percentage of its current price.
Assets under management (AUM): The total market value of all assets that a fund manages on behalf of investors.
Beta: A measure of a fund's or stock's volatility compared to the overall market, typically the S&P 500.
Max drawdown: The largest percentage drop from a fund's peak value to its lowest point over a specific period.
Growth of $1,000 over 5 years: The ending value of a $1,000 investment after five years, including price changes and dividends.
Consumer staples: Essential products such as food, beverages, and household goods that people regularly purchase regardless of economic conditions.
Consumer defensive stocks: Companies that produce goods or services with steady demand, even during economic downturns.
Consumer cyclical: Companies whose sales and profits are sensitive to economic cycles, such as retailers or automakers.
ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Index: A statistical measure representing the performance of a group of securities, often used as a benchmark for funds.