XLP vs. RSPS: Is XLP's Focus on Consumer Staples Heavyweights a Winning Strategy?

The State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) stands out for its rock-bottom expense ratio and deep liquidity, while the Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSEMKT:RSPS) offers a different weighting method for sector exposure.

Both XLP and RSPS focus on U.S. consumer staples stocks, but XLP tracks the largest companies by market cap, while RSPS gives each holding the same weight. This comparison looks at cost, performance, risk, and portfolio construction to help investors understand which may better fit their needs.

Snapshot (cost & size)

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

XLP is considerably more affordable, charging just 0.08% annually compared to RSPS’s 0.40% expense ratio. The two funds generate similar dividend yields, so it is cost rather than income that marks the main difference in ongoing expenses.

Performance & risk comparison

What's inside

XLP delivers exposure to the U.S. consumer staples sector, holding 38 stocks, and has been in operation for 27 years. Its massive scale and trading volume make it especially liquid for large trades. The fund's top positions include Walmart (NYSE:WMT), Costco Wholesale (NASDAQ:COST), and Procter & Gamble (NYSE:PG), reflecting a tilt toward the sector’s largest players. This approach means big companies can dominate the fund's performance.

RSPS also invests exclusively in consumer staples. However, it takes an equal-weighted approach, meaning each of its 38 holdings has roughly the same allocation. Its top positions feature Monster Beverage (NASDAQ:MNST), Bunge Global (NYSE:BG), and Dollar Tree (NASDAQ:DLTR). These stocks typically have a much smaller role in cap-weighted funds like XLP. This structure may appeal to investors seeking to avoid concentration in the sector’s giants.

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Foolish take

Consumer staples are often viewed as defensive stocks because people still need to eat and do laundry, even when the economy is in decline. However, many stocks in the sector have struggled this year. Inflation and tariff concerns have taken their toll.

For investors concerned that the S&P 500 is overly concentrated in tech giants, both the XLP and RSPS ETFs offer ways to diversify. Consumer staples probably benefit least from the AI boom. This has contributed to their underperformance but may also mean the sector will hold its own if the tide turns. Choosing between XLP and RSPS largely depends on the size of the companies you want to focus on and what fees you're willing to pay.

XLP is weighted towards big hitters, which has helped it outperform RSPS. Strong performances from big retailers like Walmart have offset some of the losses in the rest of the sector. Its low expense ratio and high liquidity also make it more appealing than RSPS.

RSPS's equal weighting means it could be worth a closer look if your investment strategy leans toward small- and medium-cap companies. The fund may have declined 6.6% in the past year and 1.7% in the past five years, but it provides more exposure to stocks that aren't as prominent in XLP. Capital may rotate back into a mix of defensive stocks if the mood becomes more risk-averse.

Glossary

Expense ratio: The annual fee, expressed as a percentage, that a fund charges to cover its operating costs.
Dividend yield: The annual dividends paid by a fund or stock, shown as a percentage of its current price.
Equal-weight approach: A portfolio strategy where each holding is given the same allocation, regardless of company size.
Cap-weighted: A method where holdings are weighted according to their market capitalization, giving larger companies more influence.
Liquidity: How easily and quickly an asset can be bought or sold without affecting its price.
AUM (Assets Under Management): The total market value of all assets managed by a fund.
Beta: A measure of a fund's or stock's volatility compared to the overall market, typically the S&P 500.
Max drawdown: The largest percentage drop from a fund’s peak value to its lowest point over a specific period.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
Consumer staples sector: Industry segment including companies that produce essential products like food, beverages, and household goods.
Portfolio construction: The process of selecting and weighting investments within a fund to achieve specific objectives.

Emma Newbery has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, Monster Beverage, and Walmart. The Motley Fool has a disclosure policy.