Key Points
- A consumer staple is a type of product or service that is considered essential or necessary for everyday use.
- Consumer staple ETFs can provide you with instant diversification for your portfolio by offering exposure to multiple areas of the sector.
- Familiarizing yourself with consumer staple ETFs may offer you a unique level of stability in your portfolio.
- 5 stocks we like better than Coca-Cola Consolidated
A consumer staple ETF (exchange-traded fund) is an investment fund that tracks a series of stocks in companies that produce essential goods and services. The definition of a "consumer staple" usually includes products that consumers typically purchase regardless of economic conditions. Companies that produce consumer staples are usually relatively stable, as their products are in constant demand. This may make an ETF for consumer staples an attractive investment during economic uncertainty.
Consumer staples companies typically include:
- Food and beverage producers
- Household goods manufacturers
- Personal care product makers
- Other similar businesses
By investing in a consumer staple ETF, you can gain exposure to a diversified portfolio of these companies in a single trade rather than buying individual stocks. Read on to learn more about the best consumer staples ETFs and how you can begin investing in them.
What are consumer staples ETFs?
Before discussing the best monthly dividend stocks and ETFs, it's important to understand ETFs, how they work and how they vary from investing in common shares of stock. An ETF is an investment fund that trades on major stock exchanges, including the NASDAQ or the New York Stock Exchange.
ETFs are a grouping of stocks that trade together as a single unit. Investment companies create ETFs, typically holding a basket of securities that mirror the index or sector they are tracking. An ETF could mimic the performance of a specific index (like the S&P 500 or the Dow Jones Industrial average. The fund's shares are listed on a stock exchange, and investors can buy and sell them just like they would with individual stocks.
One of the advantages of ETFs is that they provide investors with diversification, as they hold many securities. When you divide your total investment funds between multiple stocks (like when you buy an ETF), you won't see a loss as significant if one individual stock in the fund loses value. ETFs generally have lower fees than mutual funds and other investment vehicles.
Many ETFs are available, including broad-based ETFs that track entire markets or indices and sector-specific ETFs that focus on particular industries or sectors. As the name suggests, a consumer staple ETF is an ETF that focuses on stocks issued by companies producing household goods. Some examples of stocks commonly included in consumer staple ETFs include:
These companies are known for selling essential consumer goods and services, including household products like cleaning supplies, personal care items, food and beverages and tobacco. You can use tools like MarketBeat's ETF screener to identify other companies typically included in consumer staple ETFs.
Understanding consumer staples stocks
Consumer staple stocks are shares in companies that produce and sell essential, non-discretionary products and services that people need daily. People buy consumer discretionary products regardless of economic conditions, which makes them appealing choices for investors.
Stocks in this sector usually represent companies that produce food, beverage, healthcare and personal care items. They tend to be relatively resilient during periods of economic downturns because consumers must continue to purchase these necessities even when facing financial challenges. As a result, consumer staple stocks are often considered a safe investment choice, providing stability and consistent dividends to investors.
Benefits of consumer staples stocks
Thanks to the following benefits, consumer staples stocks and ETFs have long been appealing to investors:
- Stability and resilience: Consumer staple stocks are known for their stability and ability to bounce back in price, even in challenging economic conditions. Demand remains relatively consistent even when factors like unemployment remain high since they produce essential products and services that people need daily. If you're an investor searching for relatively more risk-averse options for your portfolio, consumer staples stocks can be a great choice.
- Recession-resistance: Consumer staples are often referred to as recession-proof or recession-resistance investments. During economic recessions or periods of severe market volatility, people purchase necessities like food, cleaning products and healthcare items. This helps maintain the financial health of these companies and provides a buffer against economic uncertainties.
Some investors use consumer staple assets as part of a defensive asset allocation strategy. They may allocate more assets to consumer stapler relative stability when they believe that a recession or market downturn is looming stocks for thei.
Historical performance
Consumer staple stocks have historically weathered periods of economic instability well, producing regular returns that outpaced major market indexes. For example, during the 2008 financial crisis, the S&P 500 consumer staples sector outperformed the broader market. While the S&P 500 index declined significantly, the consumer staples sector experienced a more modest decline. While today’s consumers are more sensitive to price hikes than in previous periods of recession, companies in this sector with high barriers to entry (like the soda industry) are poised to see the most growth in the coming years.
Over the long term, consumer staple stocks have demonstrated steady growth. While they may not provide the same level of capital appreciation as high-growth sectors like technology, they have consistently delivered reliable returns over the years. This performance is particularly appealing to long-term investors looking for stability. If you're getting closer to retirement and looking to increase portfolio stability, consumer staple ETFs might be right for you.
Types of consumer staples ETFs
Consumer staple ETFs are organized into categories based on the underlying investments that make up the fund. The ideal fund allocation depends on your risk tolerance and investment goals.
Broad-based ETFs
Broad-based ETFs provide exposure to various consumer staple companies across various subsectors, such as food and beverages, personal care products and healthcare. They aim to capture the overall performance of the consumer staples sector without putting too much weight into one particular sector. An example of a consumer staple ETF in this category is the iShares U.S. Consumer Goods ETF NYSE: IYK, which seeks to replicate the performance of the Dow Jones United States Consumer Goods Index.
Subsector ETFs
Sector-specific ETFs, as the name suggests, focus on a specific sector of the economy, such as technology or consumer discretionaries. These ETFs differ from broad-based ETFs in that they concentrate their investments within a single industry or sector, whereas broad-based ETFs provide exposure to a wide range of sectors and industries. Within the consumer staple sector, subsector ETFs focus on a specific type of product or service; common examples include food and beverage products, healthcare and household goods. Examples include the Invesco Dynamic Food & Beverage ETF NYSE: PBJ and the VanEck Retail ETF NASDAQ: RTH.
Thematic ETFs
In a world of changing consumer preferences, thematic ETFs can help investors lock into a specific market trend. These ETFs allow investors to target specific themes within the consumer staples sector by investing in an array of companies that meet sustainability, ESG or other investment criteria set by the underlying firm. A popular example of an ETF in this category is the iShares MSCI ACWI Low Carbon Target ETF NYSE: CRBN, which invests in a broad-based selection of companies (including consumer goods) with positive carbon emissions reduction results.
Key metrics for evaluation
As you evaluate consumer staple ETFs, it can be most helpful to compare them to the historical performance of the same fund or versus other funds in the same category. The following are some key metrics to consider as you narrow your investment options:
- Economic conditions: Considered largely defensive portfolio additions, you may want to consider scaling your portfolio toward consumer staples when periods of recession may be approaching. Assess the prevailing economic conditions before investing in a consumer staples ETF, especially regarding average interest rates. Low interest rates may benefit consumer staples companies by reducing borrowing costs for expansion.
- Changing consumer preferences: Consumer staples must directly appeal to customers against competitors, which means that the companies best poised to perform well are those most in touch with current market preferences. Stay attuned to shifts in consumer demands, such as the growing demand for organic, sustainable and more health-conscious products. ETFs focused on companies that align with these trends may perform well.
- Relevance with e-commerce trends: Monitor the impact of e-commerce on consumer staples. The growth of online shopping can affect traditional retailers and logistics companies in this sector, with companies that connect directly to customers and provide a more personalized shopping experience better set to perform well.
You should also be sure to monitor food safety and labeling regulations, especially if you invest in ETFs focusing on food and beverage companies. Changing regulations can affect product manufacturing and labeling practices, especially for companies offering restricted products like alcohol and tobacco.
8 Best Consumer Staples ETFs
Now that you understand what a consumer staple ETF is and how an investment service provider might put together a consumer-focused fund, you may feel ready to explore an ETF for consumer staples to add to your portfolio. Consider beginning your research with a few of the funds below.
Vanguard Consumer Staples ETF
The Vanguard Consumer Staples ETF NYSE: VDC aims to track the performance of the MSCI US Investable Market Consumer Staples 25/50 Index. Some top holdings in the Vanguard Consumer Staples ETF include Procter and Gamble Co., Coca-Cola Co. and PepsiCo Inc. As of March 2023, the ETF had a total net asset value of over $6 billion and a dividend yield of 2.41%.
First Trust Nasdaq Food & Beverage ETF
The First Trust Nasdaq Food & Beverage ETF NASDAQ: FTXG is an exchange-traded fund that aims to track the performance of the NASDAQ U.S. Smart Food and Beverage Index. This index includes U.S. companies that produce, distribute and sell food and beverage products. The ETF seeks to replicate the index's performance by investing in a diversified portfolio of stocks from the index.
Some top holdings in the First Trust Nasdaq Food & Beverage ETF include PepsiCo Inc., Coca-Cola Co., Keurig Dr. Pepper Inc. and Mondelez International Inc. The ETF's portfolio is diversified across various food and beverage sub-sectors, including soft drinks, packaged foods, dairy products, and meat products. As of March 2023, the fund had a little less than $1 billion in assets under management and paid out a dividend yield of 1.51%.
iShares Global Consumer Staples ETF
The iShares Global Consumer Staples ETF NYSE: KXI tracks the performance of the S&P Global 1200 Consumer Staples Sector Index. This consumer staples ETF offers investors exposure to companies across multiple countries, including the United States, Switzerland, Japan, and the United Kingdom. Some of the top holdings in the ETF include Nestle SA, Procter and Gamble Co. and Coca-Cola Co. As of March 2023, the ETF had a total of $1.51 billion in assets under management, as well as an overall dividend yield of 1.98%.
iShares U.S. Consumer Staples ETF
The iShares U.S. Consumer Staples ETF NYSE: IYK tracks the performance of the Dow Jones U.S. Consumer Goods Index. The ETF invests in a diversified portfolio of U.S. companies and is similar to the iShares Global Consumer Staples fund without exposure to international consumer goods. Some of this ETF's largest holdings include Procter & Gamble Co., Coca-Cola Co., PepsiCo Inc. and Walmart. In March 2023, the fund had $1.83 billion in assets under management and a dividend yield of 2.25%.
First Trust Consumer Staples AlphaDEX Fund
The First Trust Consumer Staples AlphaDEX Fund NYSE: FXG is an exchange-traded fund (ETF) that seeks to track the performance of the StrataQuant Consumer Staples Index. As of March 2023, the fund had a total of $735 million in assets under management and a dividend yield of 1.86%. Some of the fund's top holdings are in Procter and Gamble, Coca-Cola, PepsiCo, and Walmart.
The FXG ETF uses a unique quantitative methodology called the AlphaDEX selection methodology to choose stocks and other assets to include in the portfolio. This methodology uses fundamental and technical factors to rank stocks based on their potential for outperformance relative to their peers. The top-ranked stocks are then selected for inclusion in the ETF's portfolio, while lower-ranked stocks are excluded.
Fidelity MSCI Consumer Staples Index ETF
The Fidelity MSCI Consumer Staples Index ETF NYSE: FSTA tracks the performance of the MSCI USA IMI Consumer Staples Index. This index includes large-, mid- and small-cap stocks from the consumer staples sector of the U.S. equity market. Some of the fund's largest holdings include Proctor and Gamble, Coca-Cola Co. and PepsiCo.
FSTA, like other mutual funds and ETFs from Fidelity, is known for its lower-than-average expense ratios. As of March 2023, the fund had an expense ratio of 0.084%, totaling $1.11 billion in assets under management. This fund also features a dividend yield of 2.29%.
Invesco S&P 500 Equal Weight Consumer Staples ETF
The Invesco S&P 500 Equal Weight Consumer Staples ETF NYSE: RHS tracks the performance of the S&P 500 Equal Weight Consumer Staples Index. This index includes consumer staple companies in the S&P 500 index. As of March 2023, the fund had more than $734 million in assets under management and a dividend yield of 2.35%.
Each company in the fund has an equal weighting in the index, which means larger companies with more influence in the overall economy are weighted less heavily when calculating fund inclusions, as is typically the case with other ETF consumer staples. By giving each company an equal weighting, the ETF provides more diversified exposure to the sector than traditional market-cap-weighted ETFs. Some of the fund's top holdings are in Estee Lauder, Clorox and Molson Coors.
Consumer Staples Select Sector SPDR Fund
The Consumer Staples Select Sector SPDR Fund NYSE: XLP aims to track the performance of the Consumer Staples Select Sector Index, which is composed of companies in the S&P 500 Index classified in the consumer staples sector. As of March 2023, the fund had over $16 billion in assets under management and a dividend yield payout of 2.54%.
Investing in consumer staples
Investing in consumer staples can be a good idea for investors looking for stability and long-term growth potential. Consumer staples are essential for daily life and are in demand regardless of economic cycles. Familiarizing yourself with ETF strategies to beat the market and researching consumer staple ETFs may offer you a unique level of stability in your journey toward long-term investment goals. As with any other investment, it's a good idea to consult with a financial advisor familiar with your unique goals before making any major ETF investing decisions.
FAQs
The following are some of investors' most common questions before investing in a consumer staples ETF.
What are the top five rated ETFs to buy?
When ranked by market capitalization, the top five ETFs include the SPDR S&P 500 ETF Trust, iShares Core S&P 500 ETF, Vanguard Total Stock Market ETF, Vanguard S&P 500 ETF and the Invesco QQQ Trust. The best ETF to buy may vary depending on your investment goals, initial investment capital, and additional factors.
Does Vanguard have a consumer staples ETF?
Vanguard offers a consumer staples ETF called the Vanguard Consumer Staples ETF NYSE: VDC. The VDC ETF seeks to track the performance of the MSCI US Investable Market Consumer Staples 25/50 Index, which is composed of U.S. companies in the consumer staples sector.
Is it better to buy consumer staples stocks or ETFs?
In most cases, buying consumer staple ETFs rather than individual stocks is a better idea due to a lower level of risk (though both assets have pros and cons). Buying a consumer staples ETF can expose investors to a diversified portfolio of consumer staples companies, reducing company-specific risks and potentially providing a more stable return.
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