Looking for a Consumer Staples ETF? Here's How XLP and RSPS Compare on Cost, Risk, and Earnings

The State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) stands out for its low cost and larger assets under management (AUM), while the Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSEMKT:RSPS) offers broader exposure to mid-tier staples stocks via equal weighting.

Both XLP and RSPS target the U.S. consumer defensive sector, but XLP tracks the sector’s largest names with a market-cap-weighted approach, whereas RSPS gives each constituent an equal footing. This comparison highlights differences in cost, performance, risk, and portfolio structure to help investors determine which style best fits their goals.

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.

XLP is considerably more affordable on fees, with a much lower expense ratio than RSPS. Dividend yields are roughly the same, so the cost difference is the main factor for investors comparing ongoing fees.

Performance & risk comparison

What's inside

XLP holds 36 stocks covering the entire U.S. consumer defensive sector, but its market-cap-weighted design results in heavy exposure to giants like Walmart, Costco Wholesale, and Procter & Gamble. The fund has a long track record of 27 years, and its top three holdings alone comprise nearly 30% of assets, making it a focused play on established industry leaders.

RSPS, by contrast, equal-weights its 37 holdings, providing more balanced exposure across the consumer staples space. Its top positions -- Dollar Tree, Dollar General, and The Estee Lauder Companies -- each represent less than 4% of assets. Both funds are 100% consumer defensive, but RSPS’s approach reduces single-stock concentration and may appeal to investors seeking diversification beyond the sector’s largest names.

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What this means for investors

Both XLP and RSPS are highly targeted ETFs focused on a relatively niche sector of the market, but they differ primarily in their diversification and portfolio allocations.

While the two funds contain roughly the same number of stocks, XLP is more tilted toward its top holdings. The top three stocks alone make up 28.61% of the entire fund, compared to 9.48% with RSPS's top three holdings.

XLP's strategy can be both an asset and a risk. When its top holdings are performing well, this ETF can see higher-than-average returns. But if those stocks stumble, it can quickly derail the fund's overall earnings.

RSPS's more diversified approach offers a different set of advantages and disadvantages. With less of a focus on its top holdings, RSPS is more protected against volatility. But there's also a chance that high performers will be diluted by lower-performing stocks, shrinking this ETF's earning potential.

Fees and flexibility are other factors investors may want to consider before buying. XLP boasts a much lower expense ratio of 0.08% compared to RSPS's 0.40%, meaning investors can expect to pay $8 or $40 per year, respectively, in fees for every $10,000 invested. For long-term investors, those fees can add up over time.

XLP is also the larger of the two funds, with a significantly higher AUM. This can provide greater liquidity and make it easier to buy and sell, which can be an advantage for some investors seeking greater flexibility.

Glossary

Expense ratio: The annual fee a fund charges investors, expressed as a percentage of assets under management.
Assets under management (AUM): The total market value of assets a fund manages on behalf of investors.
Market-cap-weighted: An index or fund strategy where each holding's size is based on its total market value.
Equal-weighted: A portfolio strategy where each holding has the same weight, regardless of company size.
Dividend yield: The annual dividend income from an investment, shown as a percentage of its current price.
Beta: A measure of a security’s volatility compared to the overall market, typically the S&P 500.
Max drawdown: The largest observed percentage drop from a fund’s peak value to its lowest point over a period.
Consumer defensive sector: Industry segment focused on products essential for everyday living, like food, beverages, and household goods.
Concentration: The degree to which a portfolio is invested in a small number of holdings or sectors.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.

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 has a disclosure policy.