Which Is the Better Consumer Staples ETF, Vanguard's VDC or Invesco's RSPS?

The Vanguard Consumer Staples ETF (NYSEMKT:VDC) offers significantly lower costs and broader diversification, while the Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSEMKT:RSPS) uses an equal-weight strategy that emphasizes smaller constituents within the sector.

Investors looking for stability often turn to consumer staples, a sector known for household names that provide nondiscretionary goods. However, the way a fund constructs its portfolio can significantly alter the risk profile. This comparison looks at the market-cap-weighted approach of VDC versus the equal-weight strategy employed by RSPS, highlighting how these different methods impact diversification and cost.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard fund is the more cost-effective option for long-term investors, offering an expense ratio of 0.09% compared to the 0.40% charged by the Invesco fund. This gap of 0.31 percentage points represents a meaningful difference in annual management fees. While VDC is less expensive to hold, RSPS may appeal more to those prioritizing current income, given its higher trailing distribution yield.

Performance & risk comparison

The Vanguard Consumer Staples ETF is designed to track the performance of companies that produce essential goods. Its portfolio of 103 holdings is heavily concentrated in the consumer defensive sector at 97%, with 1% each in consumer cyclical and industrial stocks. Its largest positions include Walmart (NASDAQ:WMT) at 14.49%, Costco Wholesale (NASDAQ:COST) at 11.83%, and Procter & Gamble (NYSE:PG) at 8.69%. This fund was launched in 2004. The Vanguard Consumer Staples ETF has paid $4.80 per share over the trailing 12 months, which on its recent ~$228.81 share price works out to a 2.10% yield.

The Invesco S&P 500 Equal Weight Consumer Staples ETF takes a different approach by assigning an equal weight to every stock in its index regardless of size. The fund holds 34 stocks, with a 97% tilt toward consumer defensive names and 3% in consumer cyclical stocks. Its top holdings include Kimberly-Clark (NASDAQ:KMB) at 3.31%, Dollar Tree (NASDAQ:DLTR) at 3.26%, and General Mills (NYSE:GIS) at 3.22%. This fund was launched in 2006. Invesco S&P 500 Equal Weight Consumer Staples ETF has paid $0.89 per share over the trailing 12 months, which on its recent ~$30.38 share price works out to a 2.90% yield.

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What this means for investors

Both the Vanguard Consumer Staples ETF (VDC) and the Invesco S&P 500 Equal Weight Consumer Staples ETF (RSPS) offer an efficient way to invest in the consumer staples sector, which adds defensive stocks to your portfolio. Deciding between the two comes down to which fund’s strategy appeals to you most.

VDC’s approach delivers greater diversification with over 100 holdings, and gives you exposure to giants in the industry, such as Walmart. Another key distinction is the fund’s far larger AUM of $9.1 billion. This offers superior liquidity, resulting in tighter bid-ask spreads, and its massive AUM is a sign of its popularity. However, a key trade-off is that it’s weighted by market cap, making VDC’s performance highly dependent on its biggest holdings.

RSPS’ equal-weight strategy removes its reliance on a few top stocks to deliver performance, and helps it benefit from the growth potential of smaller-cap companies. The fund contains so few holdings because it targets only consumer staples stocks among the S&P 500. Its downsides include the higher expense ratio and lower AUM.

VDC is likely to appeal to cost-conscious investors who want the mega-cap stocks, and favor a “set-it-and-forget-it” mentality. RSPS is the ETF for those who seek a more balanced portfolio and higher dividend yield.

Robert Izquierdo has positions in Walmart. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.