Which Is the Better Consumer Staples ETF, State Street's XLP or Invesco's RSPS?

Comparing the Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSEMKT:RSPS) and the State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) reveals how different weighting methodologies can impact sector exposure and risk within defensive stocks.

Investors often turn to the consumer staples sector for its historically lower volatility and reliable dividends, as these companies provide essential goods that consumers buy regardless of economic conditions. While the State Street fund concentrations on industry giants, RSPS provides equal exposure to every staple company within the S&P 500 index.

Snapshot (cost & size)

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

The State Street fund is significantly more affordable for long-term holders, maintaining a low expense ratio of 0.08%. While the Invesco fund offers a slightly higher payout with a 2.80% trailing-12-month distribution yield, its 0.40% expense ratio is five times higher than its peer.

Performance & risk comparison

What's inside

The Invesco S&P 500 Equal Weight Consumer Staples ETF focuses on equalizing influence across its 37 holdings, ensuring that mid-cap staples have as much impact as industry titans. Its largest positions include Casey's General Stores (NASDAQ:CASY) at 3.29%, Tyson Foods (NYSE:TSN) at 3.28%, and Archer-Daniels-Midland (NYSE:ADM) at 3.21%. This Invesco fund, which was launched in 2006, rebalances quarterly to maintain this structure and has a trailing-12-month dividend of $0.84 per share. Its portfolio is composed of 97.00% consumer defensive stocks and 3.00% consumer cyclical names.

The State Street Consumer Staples Select Sector SPDR ETF is more concentrated, holding 36 companies with a heavy tilt toward mega-caps that can dominate performance. Top holdings include Walmart (NASDAQ:WMT) at 11.93%, Costco Wholesale (NASDAQ:COST) at 9.55%, and Procter + Gamble (NYSE:PG) at 7.25%. This fund was launched in 1998 and paid $2.18 per share over the trailing 12 months. Its sector makeup consists of 99.00% consumer defensive and 1.00% consumer cyclical stocks, offering more concentrated exposure to the largest U.S. consumer companies.

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

What this means for investors

Having exposure to the consumer staples sector is important as a means of buoying a portfolio during turbulent macroeconomic environments. That was the case for the Invesco S&P 500 Equal Weight Consumer Staples ETF (RSPS) and State Street Consumer Staples Select Sector SPDR ETF (XLP) this year. Both funds saw their prices soar in Q1 as investors rotated away from tech stocks.

That changed in Q2, as investors flocked back to the technology industry, creating an opportunity to pick up RSPS and XLP at a lower price. Choosing which to invest in comes down to a few key differences.

XLP is the better ETF for investors who want exposure to some of the biggest companies in the consumer staples sector. This helped the fund deliver strong performance over the past year, and a lower max drawdown. XLP also offers far greater liquidity with a $14.6 billion AUM at a much lower cost. The downside is that the ETF’s performance relies heavily on its mega-cap stocks, considering Walmart and Costco alone represent about 20% of the fund.

RSPS spreads out its holdings more broadly, so one or two companies don’t have a big impact on the fund’s overall performance. This is the ETF for investors who prefer to have more equal weighting across consumer staples stocks, or who already own shares of the mega-cap stocks in the sector. However, the fund is more expensive, and its performance has not be as strong as XLP.

Robert Izquierdo has positions in Walmart. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool recommends Casey's General Stores. The Motley Fool has a disclosure policy.