First Trust (FTXG) Vs. iShares (IYK): Is a Food & Beverage Focus the Better ETF Option for Investors?

Comparing First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG) and iShares U.S. Consumer Staples ETF (NYSEMKT:IYK) reveals a trade-off between the First Trust fund's niche focus and the iShares fund's lower costs and broader sector reach.

These two exchange-traded funds both focus on defensive equities, a category of stocks that historically provides stability during market turbulence because they sell essential products like food, beverages, and household staples. While the First Trust Nasdaq Food & Beverage ETF employs a "smart" index methodology to select food and beverage companies, the iShares U.S. Consumer Staples ETF offers a broader, cap-weighted approach to the entire domestic consumer staples sector. This comparison examines how their different scopes and cost structures affect their risk profiles and long-term performance potential for conservative investors.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The one-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The iShares fund is more affordable, with an expense ratio of 0.38. The expense gap of 0.22 percentage points may seem small, but it can compound significantly over a long-term investment horizon, particularly in a sector known for steady, lower-volatility growth. While the iShares fund pays a lower dividend of 2.66%, the difference is not dramatic.

Performance & risk comparison

What's inside

The iShares U.S. Consumer Staples ETF (NYSEMKT:IYK) provides broad exposure across the defensive landscape. Its portfolio composition includes consumer defensive at 85%, healthcare at 11%, and basic materials at 3%. With 54 holdings, its largest positions include Procter & Gamble (13.51%), The Coca-Cola Company (12.35%), and Philip Morris International (11.02%). This fund, launched in 2000, has paid $1.89 per share over the trailing 12 months and is designed to reflect the performance of American consumer staples equities. Over the past year, its share price has traded between $65.21 and $77.70.

The First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG) maintains a significantly tighter industry focus. It allocates approximately 94% to consumer defensive names, with the remaining exposure in basic materials and industrials. Its largest positions include Archer-Daniels-Midland Company (9.96%), Mondelez International (8.57%), and The Coca-Cola Company (8.36%). Launched in 2016, this fund manages 31 holdings and seeks to track the Nasdaq U.S. Smart Food & Beverage Index. It has paid $0.61 per share over the trailing 12 months and has traded in a 52-week range of $20.43 to $23.94.

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Which ETF is the better option?

Since launching in 2000, IYK has delivered annualized total returns of 8.8%, whereas FTXG has delivered annualized total returns of only 3.2% after its debut in 2016. Considering that both consumer staples ETFs have similarly low five-year betas well below the market’s volatility, this outperformance is rather stark.

Given IYK’s outperformance, similar beta, lower expense ratio, and nearly identical dividend yield, I could only consider buying the iShares ETF. FTXG’s 0.60% expense ratio is a tough pill to swallow, considering the minimal returns it has generated, but some investors may be interested in its low average P/E ratio of 20 among the stocks it holds. That said, while IYK’s P/E ratio of 26 is a slight premium, I think its past results show that the stocks it holds are worth it.

However, one thing to note for those considering IYK is that two of its top ten holdings are cigarette and vape stocks, so if that is an area you avoid, you may not want to consider the ETF. Overall, I wish I could make a better case for FTXG, but its higher expenses, worse performance, and focus on a food-and-beverage niche facing a GLP-1-sized headwind make it less palatable than IYK, in my opinion.

Josh Kohn-Lindquist has positions in Coca-Cola. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.