IYK vs. XLP: Top Holdings Could Make the Difference

The State Street Consumer Staples Select Sector SPDR ETF (XLP) and iShares US Consumer Staples ETF (IYK) both target U.S. consumer staples, but XLP is a lower-cost and more concentrated fund, while IYK is broader and includes a small healthcare tilt.

Both funds are designed for investors seeking exposure to the consumer staples sector, but IYK (NYSEMKT:IYK) introduces modest healthcare and basic materials exposure, while XLP (NYSEMKT:XLP) remains strictly consumer defensive. This comparison reviews cost, returns, risk, and portfolio construction to help clarify which approach may appeal to different portfolio needs.

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 looks more affordable with its lower expense ratio, while also offering a slightly higher dividend yield compared to IYK. The fee gap may add up for cost-conscious investors, although yield differences are modest.

Performance & risk comparison

What's inside

IYK tracks the U.S. consumer staples sector but expands its reach with 12% in healthcare and 2% in basic materials, holding 55 companies in total. Its top positions include Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), and Philip Morris International (NYSE:PM), and the fund has been operating for over 25 years.

XLP, by contrast, stays strictly within the consumer defensive sector, with 100% allocation there and 37 holdings. Its largest positions are Walmart (NYSE:WMT), Costco Wholesale (NASDAQ:COST), and Procter & Gamble, offering a pure-play approach for those seeking direct exposure to staples.

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

Foolish take

Often, when two similar ETFs are viewed side by side, the decision ultimately comes down to a trade-off between fees and performance, or perhaps dividend yield. In the case of XLP and IYK, the fee structure presents a comparatively stark contrast. At more than four times the fee, IYK is significantly more expensive, leading investors to consider other factors to determine if the additional fee expense is worth paying.

Considering the long-term and short-term performance of these two funds, it's difficult to justify the higher fee associated with investing in IYK. The dividend yield is even slightly higher with the lower-fee XLP fund.

One way in which the funds differ is in the sector allocation and top holdings. While both funds claim Procter and Gamble among their top holdings, XLP's top two holdings of Walmart and Costco don't even appear in the top 10 for IYK. An investor who doesn't want exposure to very large companies like Walmart or Costco may find the higher fee with IYK worth paying.

Investors considering these two investments may want to examine each fund's top holdings more closely. It is possible that this is where one might find a difference that alters the calculus of the fee discrepancy between the funds.

Glossary

Expense ratio: The annual fee, as a percentage of assets, that a fund charges its investors.
Dividend yield: Annual dividends paid by a fund or stock, expressed as a percentage of its current price.
Assets under management (AUM): The total market value of all assets managed by a fund or investment company.
Beta: A measure of a fund's price volatility compared to the overall market, typically the S&P 500.
Max drawdown: The largest percentage drop from a fund's peak value to its lowest point over a specific period.
Consumer staples sector: Industry segment including companies that produce essential products like food, beverages, and household goods.
Consumer defensive sector: Another term for consumer staples; companies whose products remain in demand during economic downturns.
Pure-play: An investment focused exclusively on a single industry or sector, without diversification into other areas.
Holdings: The individual stocks or securities owned within a fund or portfolio.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
ETF (Exchange-Traded Fund): A fund that trades on stock exchanges and holds a basket of securities, like stocks or bonds.

Jeff Santoro has positions in Costco Wholesale. 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.