The Consumer Staples Select Sector SPDR Fund (XLP) Has a Higher Yield but the Vanguard Consumer Staples ETF (VDC) Offers Broader Diversification

Vanguard Consumer Staples ETF (NYSEMKT:VDC) and the Consumer Staples Select Sector SPDR Fund (NYSEMKT:XLP) both target U.S. consumer staples stocks, aiming to capture the performance of companies viewed as essential to everyday spending. This comparison explores how the two funds stack up on cost, performance, risk, and what investors are actually buying.

Snapshot (cost & size)

XLP has a slight edge on expenses, charging a marginally lower fee of 0.08% compared to VDC's 0.09%. Yield is also higher for XLP, making it appealing for those prioritizing income from their consumer staples allocation.

Performance & risk comparison

What's inside

The Consumer Staples Select Sector SPDR Fund is focused exclusively on the consumer defensive sector, with 100% of its assets in that category. It holds just 37 stocks, making it highly concentrated—its top holdings are Walmart (NYSE:WMT), Costco Wholesale (NASDAQ:COST), and Procter & Gamble (NYSE:PG), with a track record spanning 26.9 years. There are no leverage, currency-hedging, or ESG quirks to note.

The Vanguard Consumer Staples ETF also skews heavily defensive (98%), but holds over 100 companies, offering broader representation within the sector. Its top positions—Walmart, Costco, and Procter & Gamble—are the same as XLP's, but the wider holdings count may help reduce single-stock risk.

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Foolish take

The Consumer Staples Select Sector SPDR Fund's concentration on just a few dozen stocks at a time hasn't led to big gains for investors. The ETF delivered a 99.6% total return over the past 10 years. The more diversified Vanguard Consumer Staples ETF produced a slightly better 108.1% total return over the past decade. The benchmark S&P 500 index delivered a 290.8% return over the past 10 years.

The Vanguard Consumer Staples ETF tracks the relatively broad MSCI U.S. Investible Market Consumer Staples 25/50 Index. The Consumer Staples Select Sector SPDR Fund tracks the narrower Consumer Staples Select Sector Index, which is limited to stocks in the S&P 500 index.

The Consumer Staples Select Sector SPDR Fund's concentration has helped its dividend outperform the Vanguard Consumer Staples ETF. The latest quarterly payment from the Consumer Staples Select Sector SPDR Fund was up by 46.3% over the past decade. The Vanguard Consumer Staples ETF's latest dividend payout was up by just 25.9% over the past decade.

Glossary

Expense ratio: The annual fee, expressed as a percentage of assets, that a fund charges its shareholders.
Dividend yield: Annual dividends paid by a fund or stock, shown as a percentage of its current price.
Beta: A measure of an investment's volatility compared to the overall market; lower beta means less volatility.
AUM (Assets Under Management): The total market value of assets that a fund manages on behalf of investors.
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 value $1,000 would reach if invested in the fund for five years, including returns.
Consumer staples: Companies producing essential products like food, beverages, and household goods, considered necessary regardless of economic conditions.
Defensive sector: Industries or sectors that tend to be less affected by economic downturns, such as consumer staples.
Leverage: Using borrowed money to increase the potential return of an investment, which also increases risk.
Currency-hedging: Strategies used by funds to reduce the impact of currency fluctuations on investment returns.
ESG: Environmental, Social, and Governance; criteria used to evaluate a company's ethical impact and sustainability practices.
Single-stock risk: The risk that poor performance of one company can significantly affect a concentrated fund's returns.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.