Consumer Staples ETFs: A Supermarket For Investors

Consumer Staples ETFs: A Supermarket For Investors

Sector offers many ways to invest in the essentials.

Reviewed by: Staff
Edited by: Ron Day

There was a time when the consumer staples sector was easy to figure out for investors. The companies included were giant, iconic brands that made the things we buy no matter what the economy is doing: a supermarket inside an ETF that covered toothpaste to toilet paper.  

Perceptions surrounding this conservative basket of stocks has changed this past decade. Lost in the brightness of the technology sector, at a time when stock market yields are low, and the other side of consumer spending (discretionary) is surging, consumer staples have made their way from the “cool kids” section of the market to the forgotten ones. 

Still, ignoring the sector may be foolish.

The sector is tracked by 13 ETFs, the largest of which is the Select SPDR Consumer Staples ETF (XLP), one of the 11 sector funds that State Street Global Advisors debuted in 1998, when many consumers confused “ETF” with “EFT (electronic funds transfer, as in via a bank). 

While that still probably happens more than I would like to think, that those 11 ETFs have been excellent gauges of the U.S. stock market’s rotational trend is more important to dedicated investors.

XLP: The Biggest Consumer Staples ETF

XLP is a $15.9 billion ETF that holds 39 stocks and has an above average yield for an equity sector at 2.7%, about twice that of the S&P 500. As is the case with nearly all the sector “spiders,” XLP is concentrated at the top, with just four household names (Proctor & Gamble, Costco, Walmart and Coca-Cola) accounting for just under half of assets. XLP sells at just 1.4x sales, a deep discount on the S&P 500’s 2.5x valuation figure.  

XLP was its usual haven in 2022, when it lost only 0.83% for the year in a horrendous year for stocks as well as bonds. But perhaps a good way to symbolize how defensive equity investing has not inspired investors in recent years, it returned that exact same -0.83% in 2023, which was a much better year for stocks.  

The Invesco Food & Beverage ETF (PBJ), a $115 million ETF, offers investors a way to target that sub-segment of the consumer staples sector. It is structured to allow more room for companies of varying sizes that offer a range of items we use in our diets, as well as restaurants.

PSCC: Bite-Sized Consumer Stocks

The Invesco S&P SmallCap Consumer Staples ETF (PSCC), debuted in 2010 and has amassed only $55 million. That might have something to do with its mission to own the more nascent end of the consumer staples sector, sporting just a $2 billion weighed average market capitalization.  

However, a glance at the names in that 31-stock ETF reminds us that in a sector like this, one that caters to changing consumer preferences, there might just be some future juggernauts within that ETF wrapper.  

One more historical note on consumer staples. In the history of XLP, its worst peak-to-trough drawdown was “only” 35%. If that still sounds like a steep loss, it is. But not compared to 55% for the S&P 500. This presumed boring, sleepy sector still has the reputation of being able to help investors to “SWAN” (sleep well at night). 

Rob Isbitts' Wall Street career spans 5 decades and multiple roles, all dedicated to providing clarity to investors by busting classic myths and providing uncommon perspective. He did so as a fiduciary investment advisor, Chief Investment Officer and fund manager for 27 years before selling his practice in 2020. His efforts now focus exclusively on investment research, education and multimedia. He started ETFYourself and SungardenInvestment to provide straightforward commentary and access to his investment intellectual property for portfolio construction, stocks and ETFs. Originally from New Jersey, Rob and his wife Dana have 3 adult children and have lived in Weston, Florida for more than 25 years.