iShares vs. First Trust ETFs: Which Consumer Staples ETF Is the Better Buy and Hold?

Both iShares U.S. Consumer Staples ETF (NYSEMKT:IYK) and First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG) prioritize defensive stability with their consumer staples exposure, but their reach within the market differs significantly. While IYK serves as a broad proxy for the entire consumer staples sector, including household products and tobacco, FTXG specifically targets food and beverage manufacturers. This results in distinct risk-return profiles despite their shared focus on non-discretionary consumer goods.

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 iShares fund is the more affordable option with an expense ratio of 0.38%, which may appeal to cost-conscious investors compared to the 0.60% charged by the First Trust fund. While the First Trust fund currently provides a slightly higher payout with a dividend yield of 2.80%, investors may weigh this against its higher carry cost.

Performance & risk comparison

What's inside

The iShares U.S. Consumer Staples ETF provides exposure to 54 holdings across consumer defensive (85%), healthcare (11%), and basic materials (3%) sectors. Its largest positions include Procter & Gamble at 13.74%, The Coca-Cola Company at 12.34%, and Philip Morris International at 10.84%. Launched in 2000, this fund offers a diversified look at the staples market, encompassing everything from household goods to soft drinks. It has a trailing-12-month dividend of $1.90 per share and targets companies that generally maintain demand regardless of economic cycles.

In contrast, the First Trust Nasdaq Food & Beverage ETF is much more concentrated, holding only 30 positions with 94% in consumer defensive, 4% in basic materials, and 2% in industrials. Its largest positions include Archer-Daniels-Midland Company at 9.58%, Coca-Cola at 8.45, and Mondelez International at 8.38%. This fund was launched in 2016 and follows an index-tracking strategy to replicate the Nasdaq US Smart Food & Beverage Index. It has paid $0.61 per share over the trailing 12 months.

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What it means for investors

Investors choose consumer staples stocks for defensive stability, low volatility, and consistent income generation. Taking an ETF investing approach in this market sector also provides instant diversification and alleviates the pressure of tracking the results of individual companies. IYK and FTXG offer investors two different approaches to the sector, each with its own benefits and downsides.

Let’s start with the indexes these funds track. IYK tracks the Russell 1000 Consumer Staples RIC 22.5/45 Capped Index, which measures the performance of the consumer staples sector of the U.S. equity market. That’s why its largest holdings are also some of the largest consumer staples companies by market cap in the entire market. FTXG tracks the Nasdaq US Smart Food & Beverage Index, which scans for average price appreciation, cash flow to price, and expected volatility. The approach means the index and the funds that track it tend to focus on agriculture and food processing industries.

IYK offers a broader approach, a larger portfolio, and lower fees, plus better returns over both one- and five-year periods, though it does trail FTXG a bit in terms of its dividend yield. For most long-term investors, it’s a great set-it-and-forget-it position in the broad consumer staples landscape.

Sarah Sidlow has no position in any of the stocks mentioned. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.