For investors looking for stability, companies that sell the goods that consumers absolutely need in order to survive have a lot of appeal. Consumer staples companies give shoppers the chance to buy food, beverages, and personal care items, and demand for those goods is constant even when the overall economy sputters.
Consumer staples exchange-traded funds offer investors a chance to get diversified investment exposure to these companies, and you can find several different ETFs that have subtle differences in the ways they approach the sector. The following five consumer staples ETFs have gathered the most assets and remain popular choices among investors.
|
Consumer Staples ETF |
Assets Under Management |
Expense Ratio |
5-Year Average Annual Return |
|---|---|---|---|
|
Consumer Staples Select Sector SPDR (XLP 0.76%) |
$9.7 billion |
0.14% |
12.5% |
|
Vanguard Consumer Staples (VDC 0.76%) |
$3.7 billion |
0.10% |
12.8% |
|
iShares Global Consumer Staples (KXI 0.47%) |
$620 million |
0.47% |
10.3% |
|
Guggenheim S&P 500 Equal Weight Consumer Staples (RHS 0.56%) |
$509 million |
0.40% |
15.1% |
|
First Trust Consumer Staples AlphaDEX (FXG 0.30%) |
$502 million |
0.61% |
15.2% |
Data source: Fund providers.
The two giants of the consumer staples ETF world
The top two consumer staples ETFs dwarf the rest, and they take a very similar approach toward investing in the space. The SPDR ETF is the industry leader, with by far the most assets under management. The fund is split almost equally in five sub-industries, including food and staples retail, beverages, tobacco, household and personal products, and food products. Among the top holdings are giants of the U.S. consumer industry, including makers of key household items, cigarettes, and soft drinks.
The Vanguard ETF has fewer assets under management than the SPDR but it has a slightly lower expense ratio. Top allocations within the fund are to household products, packaged foods, soft drinks, and tobacco, with super-center hypermarkets and drug retailers also getting positions in the ETF. Both the Vanguard and SPDR funds have dividend yields of about 2.5%, reflecting the dividend-paying companies that lead the industry.
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Seeking international opportunities
The global economy has grown substantially, and that has put more people abroad in a position to share in the expansion of the consumer economy. The iShares global ETF uses an all-world philosophy, with about half of its asset invested in U.S. companies and the remainder in areas that primarily include Europe and Japan. Almost 60% of the fund is invested in stocks in the food, beverage, and tobacco arenas, with 20% going to household and personal products and the remaining 20% to food and staples retailers. Fees are higher for international exposure, and returns have lagged due to sluggish performance in global stock markets, but the long-term prospects for the fund look solid.
Other approaches to consumer staples
The remaining two ETFs take different angles in investing in consumer staples. The Guggenheim ETF uses an equal-weight approach, rebalancing its 36 stocks on a regular basis to ensure even exposure across the sector. The net result is a higher exposure to food producers, which make up almost a third of the fund's holdings. Food retail, beverages, and household and personal products keep similar allocations as with the Vanguard and SPDR funds, but tobacco exposure is reduced to below 10%. Overall returns have been better than those of its peers, suggesting that the equal-weight approach has been effective over the long run.
The First Trust ETF uses a more selective methodology, ranking stocks by price appreciation, sales growth, and various valuation and internal return measures to prioritize consumer staples stocks. The worst 25% are dropped, and then the remaining stocks get ranked so that the fund has greater exposure to the best-scoring stocks. Returns have outpaced more conventional peers despite the higher cost, and the methodology has led the ETF to have a nearly two-thirds allocation to food producers and food and staples retailers, with corresponding underweights to beverages and tobacco.
Which consumer staples ETF is best for you?
All of these ETFs have produced good returns over time, and their differing philosophies and investment objectives have the potential to keep succeeding down the road. Higher costs can weigh on long-term returns with many funds, but so far, the consumer staples ETFs here have justified their expenses with strong performance, and investors should watch all of the funds closely to see if their relative performance continues into the future.
