XLP vs. RSPS: Which Consumer Staples ETF Is the Better Buy for Long-Term Investors?

State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) and Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSEMKT:RSPS) both target the U.S. consumer staples sector, but there are subtle differences in cost, diversification, and performance that investors should be aware of. This comparison looks at recent returns, risk, and the makeup of each fund to help investors see where the two diverge.

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.

RSPS charges a notably higher fee than XLP but also offers a slightly higher dividend yield.

Performance & risk comparison

What's inside

RSPS holds roughly 35 to 38 stocks from the S&P 500 consumer staples sector, assigning each an approximately equal weight. This approach helps reduce concentration in the largest companies and can provide more balanced exposure across the sector. Current holdings include Brown-Forman (NYSE:BFB), Tyson Foods (NYSE:TSN), and Mondelez International (NASDAQ:MDLZ), each representing roughly 3% of assets.

By comparison, XLP also holds a similar number of stocks, but weights them by market capitalization -- resulting in more assets concentrated in giants like Walmart (NASDAQ:WMT) at roughly 12%, Costco Wholesale (NASDAQ:COST) at around 10%, and Procter & Gamble (NYSE:PG) at about 7%. Both funds are 100% focused on consumer staples, but XLP’s approach means its returns are more influenced by the sector’s largest names.

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What this means for investors

Here's the core difference between these two funds: XLP bets on the biggest names in consumer staples, while RSPS spreads its chips more evenly across the table. That difference has mattered -- over the past five years, XLP's market-cap-weighted strategy has rewarded investors with stronger returns, helped in part by powerhouse performances from heavyweights like Walmart and Costco. When the sector's giants are running, XLP will tend to run with them.

RSPS's equal-weight approach is appealing in theory -- giving every stock the same shot at influencing returns can reduce the damage if one or two large positions stumble. But in practice, it can also dilute the upside when a handful of big names are driving the bus. And a higher expense ratio only compounds the drag over time.

It's worth noting that both ETFs have lagged the broader S&P 500 significantly over the long run -- a reflection of consumer staples being a slow-and-steady sector that tends to sit out market booms. That said, these types of funds can make sense as a defensive allocation for investors looking to reduce volatility or add income to a portfolio. If that's your goal, XLP's lower costs and stronger historical track record give it a meaningful edge. RSPS might earn a second look for investors who specifically want to avoid putting so much weight behind a handful of mega-cap names -- but they'll be paying more for that diversification, and the returns haven't shown it to be worth the premium.

Andy Gould 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.