Better Consumer Staples ETF: State Street's XLP vs. Fidelity's FSTA

The key differences between Fidelity MSCI Consumer Staples Index ETF (NYSEMKT:FSTA) and State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) come down to yield, fund size, liquidity, and portfolio concentration.

Both Fidelity MSCI Consumer Staples Index ETF (FSTA) and State Street Consumer Staples Select Sector SPDR ETF (XLP) target the U.S. consumer staples sector, offering investors defensive exposure to household names. While each tracks a slightly different index, their sector coverage is nearly identical, making cost, structure, and portfolio nuances the deciding factors for most investors.

Snapshot (cost & size)

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

Both funds are highly affordable, charging a rock-bottom 0.08% expense ratio, but XLP offers a slightly higher yield at 2.7% versus FSTA’s 2.3%. That yield gap may appeal to income-focused investors seeking a bit more payout from the consumer staples sector.

Performance & risk comparison

What's inside

XLP is built for focus: it tracks the Consumer Staples Select Sector Index, holding 36 U.S. companies entirely within the consumer defensive sector. Its top holdings, Walmart (NASDAQ:WMT), Costco Wholesale (NASDAQ:COST), and The Procter & Gamble Co. (NYSE:PG), make up a substantial portion of assets, reflecting a concentrated approach. With 27 years under its belt and $14.9 billion in assets under management (AUM), XLP’s scale also translates into high liquidity for large trades.

FSTA, by contrast, spreads its bets across 104 holdings with a nearly identical sector tilt — consumer defensive at 98%. Its largest positions are Costco Wholesale, Walmart, and The Procter & Gamble Co., but with a less concentrated allocation. FSTA’s broader portfolio may appeal to those looking for more diversification within the sector.

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What this means for investors

Both the Fidelity MSCI Consumer Staples Index ETF (FSTA) and State Street Consumer Staples Select Sector SPDR ETF (XLP) are great defensive choices for your portfolio, since they target the same industry with identical expense ratios. However, they offer some key differences in their approach.

XLP zeroes in on large-cap U.S. consumer staples companies with just 36 holdings. This concentrated exposure means the ETF's performance is strongly affected by the likes of Walmart and Costco. That said, its much larger AUM compared to FSTA translates into greater liquidity.

FSTA sports a much larger sector diversification with over 100 holdings. You still get exposure to key stocks in the industry, such as Walmart, as well as to businesses that are not part of XLP's holdings. However, FSTA's top five holdings make up a slightly larger percentage of its total portfolio allocation compared to XLP, making it top-heavy. That's why its performance is so similar to XLP's.

Ultimately, the choice comes down to the greater diversification offered by FSTA, or the superior liquidity and higher dividend of XLP.

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.
Dividend yield: Annual dividends paid by a fund or stock, expressed as a percentage of its current price.
Liquidity: How easily an asset or fund can be bought or sold without affecting its price.
AUM: Assets under management; the total market value of assets a fund manages on behalf of investors.
Beta: A measure of a fund's 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.
Portfolio concentration: The degree to which a fund's assets are allocated to its largest holdings.
Defensive sector: Industries, like consumer staples, that tend to be less sensitive to economic cycles.
Index: A benchmark representing a specific market segment, used to track performance or guide fund holdings.

Robert Izquierdo has positions in Walmart. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.