State Street or iShares: Which Consumer Staples ETF is a Better Investment?

The consumer staples sector consists of companies that supply essential items like food and cleaning products, making it a traditional “safe haven” during market instability. This discussion compares two well-known options in this space, both managing significant assets—$13.6 billion in total. The State Street Consumer Staples Select Sector SPDR ETF (XLP +2.03%), which has $1.3 billion in assets, offers extensive industry coverage, while the iShares U.S. Consumer Staples ETF (IYK +2.07%) provides another viable option for reducing portfolio volatility.

Snapshots (cost and size)

Beta indicates how much a fund’s price fluctuates compared to the S&P 500, calculated using five years of monthly returns. The one-year return reflects total returns over the next 12 months, while dividend yield is derived from distributions over the trailing 12 months.

Though a 0.30 percent difference in expense ratios may seem minor initially, it can lead to considerable differences in long-term capital growth when compounded over time. The lower fees of State Street Funds allow investors to retain more of their earnings in the long run.

Comparing performance and risk

what’s inside

The State Street Consumer Staples Select Sector SPDR ETF is largely invested in the consumer defensive sector, with this area making up 99% of its portfolio. Currently, it holds 34 stocks and invests significantly in top consumer staples companies. Major holdings include walmart at 10.4%, costco wholesale at 8.9%, and procter and gamble at 7.4%. Established in 1998, it tracks carefully chosen S&P 500 components and has paid out $2.20 per share over the last year, corresponding to a yield of 2.60% at the recent price of $83.1. Focusing on major blue-chip firms usually translates to better liquidity for investors.

The iShares U.S. Consumer Staples ETF, on the other hand, holds 53 investments that extend beyond pure staples to include related defensive stocks. Here, consumer defensive stocks comprise about 85% of the fund, along with 11% in healthcare and 3% in basic materials. Key investments include 13.32% in Procter & Gamble, coca cola at 12.3%, and philip morris international at 10.8%. This diverse mix might be appealing for those looking for a broader range of protection. Established in 2000, this ETF distributed $1.90 per share over the past year, reflecting a yield of 2.60% relative to the recent stock price of $72.7.

What it means for investors

In light of ongoing fluctuations in the tech sector, coupled with uncertainties surrounding interest rates and investments in AI, shifting some funds into safer, more stable areas of the market is a sound strategy. Both ETFs provide solid options for exposure to consumer staples, yet each comes with distinct advantages and disadvantages.

The iShares U.S. Consumer Staples ETF offers a more extensive selection of healthcare stocks, and while its one-year returns are slightly better, its higher expense ratio could diminish returns in the long term. Conversely, the State Street ETF features lower costs and heightened liquidity, which generally means more value for investors. With about ten times the assets of the iShares fund and greater liquidity, it focuses more heavily on the consumer defensive space.

The right choice between these two likely hinges on an investor’s fee tolerance and existing portfolio composition. For those interested in a wider defensive stock array, the iShares fund may be appealing, while the State Street ETF might better fit within a larger concentrated portfolio.