Vanguad vs. iShares: Which Consumer Staples ETF Reigns Supreme, VDC or KXI?

The Vanguard Consumer Staples ETF (NYSEMKT:VDC) and the iShares Global Consumer Staples ETF (NYSEMKT:KXI) both target the consumer staples sector. However, VDC is U.S.-focused, with lower costs and larger assets under management (AUM), while KXI offers global diversification, a higher fee, and a slightly higher yield.

Both the Vanguard Consumer Staples ETF and the iShares Global Consumer Staples ETF give investors exposure to companies whose products are considered essential regardless of economic conditions. This comparison examines their costs, recent returns, risk, liquidity, and portfolio composition to help investors understand which may better suit their needs.

Snapshot (cost & size)

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

KXI charges a 0.39% expense ratio, which is 0.3 percentage points higher than VDC’s more affordable 0.09% fee. KXI also offers a slightly higher dividend yield at 2.30%, compared with VDC’s 2.26%.

Performance & risk comparison

What's inside

KXI invests in 96 companies across the global consumer staples sector, with a portfolio that is 97% consumer defensive stocks and a small 3% allocation to consumer cyclical stocks. Its largest holdings are Walmart, Costco Wholesale, and Philip Morris International. With a fund age of 19 years, KXI provides some international exposure for those seeking global diversification within staples.

VDC, by contrast, is heavily U.S.-centric, with 98% of its holdings in consumer defensive stocks. Its largest positions are Walmart, Costco Wholesale, and Procter & Gamble. Both funds avoid leverage and specialty exposures, but VDC’s larger assets under management (AUM) and focus on U.S. staples may appeal to those seeking simplicity and scale.

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What this means for investors

While KXI has delivered slightly better returns over the last year, VDC has fared much better over the longer term. Since 2006, VDC has generated annualized total returns of 9.5%, versus KXI’s 7.6%. This outperformance is interesting to me as the funds’ top five holdings are the same five stocks. While a portion of this alpha comes from VDC’s lower expense ratio, I’d also argue that Vanguard seems to do a better job of filling out its portfolio with smaller allocations in its funds.

That said, if an investor would rather have more international exposure, KXI is the better option, as its holdings are only 60% U.S., with the U.K. at 12%, Japan at 6%, and Switzerland and France at 5% each. To be fair, though, most of the core holdings in VDC are U.S.-based stocks that generate a large share of their sales from overseas, so they offer ample “hidden” global diversification, regardless.

Ultimately, I’d choose VDC, primarily because of its much lower expense ratio. Both ETFs are low-beta, have similar dividend yields, trade at 25 times earnings, and have very similar holdings, so I’d rather just keep costs as low as possible with VDC, especially given its outperformance over the last two decades.

Josh Kohn-Lindquist 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.