Which Consumer Staples ETF Is the Better Buy: XLP or RSPS?

The Consumer Staples Select Sector SPDR Fund (NYSEMKT:XLP) and Invesco S&P 500 Equal Weight Consumer Staples ETF (RSPS) both target U.S. consumer staples, but XLP stands out for its lower fees, greater liquidity, and much larger assets under management.

Both the Consumer Staples Select Sector SPDR Fund and the Invesco S&P 500 Equal Weight Consumer Staples ETF offer exposure to the U.S. consumer staples sector, but differ in their weighting approaches, costs, and portfolio concentrations.

This comparison highlights how these two funds stack up for investors seeking defensive sector exposure.

Snapshot (cost & size)

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

XLP is more affordable, charging just 0.08% in annual fees compared to 0.40% for RSPS.

Their dividend yields are nearly identical, with RSPS offering a slight edge at 2.8% versus XLP’s 2.7%.

Performance & risk comparison

What's inside

The Consumer Staples Select Sector SPDR Fund (XLP) provides exposure to 37 U.S. consumer defensive stocks, with a fund age of nearly 27 years.

The portfolio is 100% consumer defensive, and its top holdings -- Walmart (NYSE:WMT), Costco Wholesale (NASDAQ:COST), and Procter & Gamble (NYSE:PG) -- carry significant weight, making the fund somewhat top-heavy.

This market-cap-weighted approach focuses on prominent household names and supports robust daily trading volume.

Invesco S&P 500 Equal Weight Consumer Staples ETF (RSPS) also holds 37 consumer defensive stocks, but each receives nearly the same weighting.

Its leading positions -- Lamb Weston (NYSE:LW), Monster Beverage (NASDAQ:MNST), and The Hershey Company (NYSE:HSY) -- each comprises 3% of assets, reflecting a more balanced portfolio across the sector.

RSPS’s equal-weight methodology may appeal to those seeking to avoid concentration in the sector’s largest companies.

For more guidance on ETF investing, check out the full guide at this link.

Foolish take

Both of these ETFs have underperformed the S&P 500 since 2006, rising 201% apiece, compared to the index's total returns of 385%.

Over the last five years, both ETFs severely lagged the market, with XLP rising 3% and RSPS declining by 1% annually, while the S&P 500 delivered impressive total returns of 13% each year.

Most of this underperformance stems from their limited exposure to a technology sector that has rapidly grown in importance to the global economy.

That said, if an investor is seeking steady, consumer staples stocks like these ETFs provide -- I would opt for XLP.

While RSPS's equal weighting methodology is sound in theory, it works against a key Foolish tenet -- letting your winning stocks run and your losing positions fade away into obscurity.

Rebalancing an equal-weight portfolio is somewhat literally "watering your weeds and trimming your flowers," a notion that The Motley Fool's co-founder, David Gardner, teaches the opposite of.

In addition to giving its stocks a longer leash to run, XLP's two largest positions are Walmart and Costco, which I believe still offer intriguing growth prospects as we advance, thanks to their top-tier compounding.

Furthermore, XLP's expense ratio is significantly lower, and the fund itself is substantially larger, making it a less risky proposition in my eyes, despite RSPS's equal-weighted portfolio.

Glossary

ETF: Exchange-traded fund; a pooled investment fund traded on stock exchanges, holding a basket of assets.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Market-cap-weighted: A fund strategy where holdings are sized based on each company's total market value.
Equal-weight: A fund strategy where each holding is given approximately the same portfolio weight, regardless of company size.
Consumer staples: Companies producing essential products like food, beverages, and household goods that people buy regularly.
Dividend yield: Annual dividends paid by a fund or stock, expressed as a percentage of its current price.
Beta: A measure of a security's volatility compared to the overall market, often 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 observed percentage drop from a fund's peak value to its lowest point over a specific period.
Liquidity: How easily an asset or fund can be bought or sold in the market without affecting its price.
Defensive sector: An industry group, like consumer staples, that tends to be less sensitive to economic cycles.

Josh Kohn-Lindquist has positions in Costco Wholesale and Hershey. The Motley Fool has positions in and recommends Costco Wholesale, Hershey, Monster Beverage, and Walmart. The Motley Fool has a disclosure policy.