Battle of the Consumer Staples ETFs: Who Comes Out on Top, XLP or VDC?

Vanguard Consumer Staples ETF (VDC) and State Street Consumer Staples Select Sector SPDR ETF (XLP) both target U.S. consumer staples, but differ in portfolio breadth, yield, and concentration.

Both funds are designed to give investors exposure to the consumer staples sector, focusing on companies seen as essential for everyday living. This comparison looks at cost, performance, portfolio makeup, and unique attributes for Vanguard Consumer Staples ETF and State Street Consumer Staples Select Sector SPDR ETF.

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 slightly more affordable on fees, and it also offers a higher dividend yield, which may appeal to income-focused investors. The difference in expense ratio is minimal, but the yield gap is more pronounced.

Performance & Risk Comparison

What's Inside

State Street Consumer Staples Select Sector SPDR ETF focuses exclusively on the consumer defensive sector, holding just 37 companies as of its 27th year. Its portfolio is tightly concentrated, with top positions including Walmart (NYSE:WMT), Costco Wholesale (NASDAQ:COST), and Procter & Gamble (NYSE:PG). XLP seeks to mirror the Consumer Staples Select Sector Index, which carves out staples from the S&P 500, resulting in a focused, large-cap tilt.

Vanguard Consumer Staples ETF, meanwhile, spans 103 stocks, offering broader coverage across the consumer defensive space with a slight allocation to consumer cyclical and industrial names. Its largest holdings are similar—Walmart, Costco Wholesale, and Procter & Gamble—but VDC’s broader roster includes smaller and mid-sized firms that may not appear in XLP. Both funds are plain vanilla in approach, with no leverage, currency hedge, or ESG overlay.

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Foolish Take

For long-term investors, sector ETFs, such as the Vanguard Consumer Staples ETF (VDC) and State Street Consumer Staples Select Sector SPDR ETF (XLP), can be a great way to enhance a portfolio. In the case of these two ETFs, there are far more similarities than differences. However, there are some key differences that prospective investors need to know about.

First off, there's dividend yield. This is a key metric, particularly for investors that are seeking income from their investments. For them, every little bit of yield matters. That's why XLP may be a better choice for income-oriented investors. It boasts a current dividend yield of 2.7% versus a 2.2% dividend yield for VDC. That said, metrics like dividend yield are variable. Therefore, as time passes, dividend yields move up or down. In short, if dividend yield is important to you as an investor, it's a metric you need to check about once a quarter.

Next, there are key differences in the funds' holdings. Specifically, each fund has a different mix between two key sub-sectors: consumer non-durables and retailers. XOP has a higher weighting of consumer non-durables stocks (think Coca-Cola, PepsiCo, Procter & Gamble). Meanwhile, VDC has a higher weighting of retailers (Walmart, Costco, Target).

In summary, income-oriented investors may want to favor the XLP over VDC, thanks to its slightly higher dividend yield. Meanwhile, those investors who are more bullish on retail stocks might prefer VDC. Either way, both funds combine solid diversification with decent long-term performance history and low expense ratios -- making each of them a solid choice for buy-and-hold investors.

Glossary

Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Dividend yield: Annual dividends paid by a fund or stock, expressed as a percentage of its current price.
Drawdown: The maximum observed loss from a fund's peak value to its lowest point over a specific period.
Beta: A measure of a fund's volatility compared to the overall market, typically the S&P 500.
AUM (Assets Under Management): The total market value of all assets a fund manages on behalf of investors.
Consumer staples: Companies that produce essential products like food, beverages, and household goods, needed regardless of economic conditions.
Consumer defensive sector: Industry segment focused on companies providing essential goods and services that remain in demand during economic downturns.
Large-cap: Refers to companies with a large market capitalization, typically over $10 billion.
Portfolio concentration: The degree to which a fund's assets are invested in a small number of holdings.
Index tracking: A strategy where a fund aims to replicate the performance of a specific market index.
Plain vanilla: A straightforward investment approach without complex features like leverage, hedging, or ESG overlays.

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