The Consumer Staples Face-Off: Buy VDC for Growth, Hold KXI for Global Cash Flow

iShares Global Consumer Staples ETF (NYSEMKT:KXI) offers international diversification within the defensive staples sector, while Vanguard Consumer Staples ETF (NYSEMKT:VDC) focuses on domestic giants at a much lower annual cost.

Consumer staples are often categorized as defensive investments because they represent products people buy regardless of the economic climate, such as food and hygiene products. While both funds target this stability, they provide different geographic exposures. This analysis compares the domestic-focused Vanguard fund with the global-focused iShares alternative to help you decide which one fits your portfolio.

Snapshot (cost & size)

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

The Vanguard fund is significantly more affordable, with an expense ratio of 0.09%, well below the industry average. By contrast, the iShares fund charges a higher annual management fee of 0.38%. While the iShares fund offers a slightly higher yield, the cost difference remains a primary factor for long-term investors.

Performance & risk comparison

What's inside

iShares Global Consumer Staples ETF tracks a global index of 92 companies, offering exposure to international markets that the Vanguard fund lacks. Its sector allocation is led by food, beverage, and tobacco at 51%, followed by staples distribution and retail at 28%, and household and personal products at 20%. Its largest positions include Walmart (NASDAQ:WMT) at 7.26%, Costco Wholesale Corp (NASDAQ:COST) at 6.00%, and Procter & Gamble (NYSE:PG) at 5.05%. It was launched in 2006. iShares Global Consumer Staples ETF has paid $1.61 per share over the trailing 12 months, which, on its recent ~$70.1 share price, works out to a 2.3% yield.

Vanguard Consumer Staples ETF maintains a portfolio of 103 U.S.-based stocks. It is heavily concentrated in consumer defensive companies, which make up 98% of its weight, with minor allocations to consumer cyclicals. Its largest positions include Walmart Inc. at 13.91%, Costco Wholesale Corp. at 12.16%, and Procter & Gamble Co. at 9.93%, indicating a much higher concentration in these top names than its global peer. It was launched in 2004. Vanguard Consumer Staples ETF has paid $4.88 per share over the trailing 12 months, which, on its recent ~$234.9 share price, works out to a 2.1% yield.

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Which looks like the better buy

When comparing the iShares Global Consumer Staples ETF (KXI) and the Vanguard Consumer Staples ETF (VDC), investors should consider several key factors. Let's see what they tell us about each fund.

First, we should examine each fund's strategy. The biggest difference here is in geographical composition. KXI splits its allocation between roughly 60% U.S. and 40% international. VDC, on the other hand, holds only U.S.-based companies.

Two other important factors are historical performance and income potential. Over the last five years, KXI has generated a total return of 31%, equating to a compound annual growth rate (CAGR) of 5.5%. VDC, meanwhile, has delivered a 44% total return, with a 7.6% CAGR. As for income potential, KXI has a slight edge. It has a dividend yield of about 2.3%, while VDC has 2.1%.

One final factor to weigh is cost. Here, VDC has a clear advantage. Its expense ratio of 0.09% is significantly less than KXI's 0.38%. For context, a person who were to invest $10,000 in each fund should expect to pay $9 per year in fees for their VDC shares but $38 per year in fees for their KXI shares.

In summary, KXI and VDC are both ETFs built around consumer staples stocks, however, there are key differences between the two. On balance, many investors may favor VDC for its low fees and its track record of superior performance. However, investors seeking international exposure or those favoring higher cash flow may view KXI as the better fit for their portfolio.

Jake Lerch has positions in Procter & Gamble. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.