Which Consumer Staples ETF Offers Better Value: XLP or IYK?

State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP)offers a lower-cost, more concentrated approach to the sector than the broader, slightly more expensive iShares U.S. Consumer Staples ETF (NYSEMKT:IYK).

Both funds serve as defensive anchors for portfolios, focusing on companies that provide essential products like food, beverages, and household goods. While they share a core mission of providing stability, significant differences in index construction, asset concentration, and cost structures could make one a more suitable fit for specific portfolio needs.

Snapshot (cost & size)

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

With an expense ratio of 0.08%, the State Street fund is considerably more affordable than the iShares alternative. Furthermore, the State Street fund offers a slightly higher payout, providing a modest yield advantage for income-focused investors.

Performance & risk comparison

What's inside

State Street Consumer Staples Select Sector SPDR ETF concentrates heavily on the consumer defensive sector at 98%, with a slim 2% in consumer cyclicals. It holds 34 stocks, and its largest positions include Walmart (NASDAQ:WMT) at 10.84%, Costco Wholesale (NASDAQ:COST) at 9.15%, and Procter + Gamble (NYSE:PG) at 7.75%. This structure enables investors to establish precise tactical allocations within the S&P 500 staples segment. The fund was launched in 1998. State Street Consumer Staples Select Sector SPDR ETF has paid $2.20 per share over the trailing 12 months, which, on its recent ~$82.28 share price, works out to a 2.7% yield.

iShares U.S. Consumer Staples ETF provides a wider net with 53 holdings, including 83% in consumer defensive, 13% in healthcare, and 3% in basic materials. Its top holdings include Coca-cola (NYSE:KO) at 13.55%, Procter & Gamble at 13.45%, and Philip Morris International (NYSE:PM) at 11.87%. The fund endeavors to replicate the performance of a benchmark comprising a broader range of American equities in the consumer staples sector. It was launched in 2000. iShares U.S. Consumer Staples ETF has paid $1.89 per share over the trailing 12 months, which, on its recent ~$71.83 share price, works out to a 2.6% yield.

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Which looks like the better buy

To compare the State Street Consumer Staples Select Sector SPDR ETF (XLP) and the iShares U.S. Consumer Staples ETF (IYK), investors should consider a few key factors. Let's have a look at them and see what that tells us about each fund.

To begin, there are differing allocations across major consumer staples stocks. Both funds hold iconic consumer staples stocks like Procter + Gamble and Coca-Cola, but they allocate different percentages to them. XLP has a larger allocation to retail stocks such as Walmart and Costco, while IYK leans more heavily toward traditional defensive stocks such as Procter & Gamble and Philip Morris.

Two other important factors are historical performance and income potential. As for performance, XLP has generated a total return of 98% over the last ten years, with a compound annual growth rate (CAGR) of 7.1%. IYK, meanwhile, has generated a total return of 134%, with a CAGR of 8.9%. Both funds have underperformed the S&P 500. As for income, the funds have very similar dividend yields. XLP has a dividend yield of 2.73%, while IYK has 2.67%, giving XLP a slight edge among income-oriented investors.

One final factor to weigh is cost. XLP has a very low expense ratio of 0.08%. IYK, on the other hand, has a 0.37% expense ratio, which is moderately higher. The difference in these fees means that XLP costs $29 less per year for every $10,000 invested. Over time, those fees can add up.

In summary, even though XLP and IYK are both consumer staples ETFs, they differ in several key respects. For me, XLP provides a better overall mix of income, performance, stock allocation, and low costs. However, IYK is by no means a poor choice. In fact, its higher allocation of pure defensive stocks may be preferred by some investors.

Jake Lerch has positions in Coca-Cola, Philip Morris International, and Procter & Gamble. 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.