Is VDC or IYK the Stronger Consumer Staples ETF? Here's What Investors Need to Know.

The Vanguard Consumer Staples ETF (NYSEMKT:VDC) stands out for its lower costs and wider diversification, while the iShares US Consumer Staples ETF (NYSEMKT:IYK) has posted somewhat better recent performance and a marginally higher yield.

Both ETFs are designed to give exposure to the U.S. consumer staples sector, offering investors access to companies whose products are considered essential regardless of economic cycles. Here's how these two ETFs compare in terms of cost, diversification, and performance in this defensive corner of the market.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

VDC is substantially more affordable on fees, charging about one-quarter the expense ratio of IYK. The dividend yield is nearly identical between the two, with both funds offering roughly equal advantages for income-focused investors.

Performance & risk comparison

What's inside

VDC contains 105 holdings, 98% of which are consumer defensive stocks. Its largest positions include Walmart, Costco Wholesale, and Procter & Gamble, and the fund has been operating for nearly 22 years. There are no notable quirks or nonstandard features.

IYK also targets the consumer defensive sector, though with a heavier allocation to healthcare stocks (11%) and a smaller portfolio of 55 names. Its biggest holdings are Procter & Gamble, Coca-Cola, and Philip Morris International, reflecting a slightly different approach compared to VDC but with a similar defensive tilt.

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Foolish take

Consumer defensive ETFs can be smart buys during periods of market volatility, as these stocks tend to perform well across all economic cycles.

VDC and IYK both offer diversification within the sector, but in their own ways. VDC is almost entirely devoted to the consumer defensive industry, but it contains nearly twice as many holdings as IYK. While IYK has a smaller portfolio of holdings, it includes a fairly significant allocation toward healthcare stocks in addition to consumer defensive.

VDC's significantly lower expense ratio can also be a selling point for some investors. With a 0.09% expense ratio compared to IYK's 0.38%, investors can expect to pay $9 per year in fees for every $10,000 invested, compared to $38 per year with IYK. While it's a subtle difference, it can add up over time with larger account balances.

Both funds provide exposure to the consumer defensive sector, but IYK's increased access to healthcare stocks can be an advantage for some investors. VDC's lower expense ratio, on the other hand, could give it a significant edge for investors looking to minimize fees.

Glossary

ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges its investors.
Diversification: Spreading investments across various assets to reduce risk.
Dividend yield: Annual dividends paid by an investment, expressed as a percentage of its current price.
Beta: A measure of an investment's volatility compared to the overall market, typically the S&P 500.
AUM (Assets Under Management): The total market value of assets 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.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
Consumer staples sector: Companies producing essential products like food, beverages, and household items, often less affected by economic cycles.
Defensive sector: Industries or sectors that tend to be less sensitive to economic downturns, providing more stable returns.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.