How to Invest in Essential Products With Consumer Staples ETFs

Investing in a consumer staples ETF can be a way for investors to potentially benefit from the stability and resilience often associated with the consumer staples sector, as these companies tend to have consistent demand regardless of economic fluctuations. 

Learn more about consumer staples ETFs, including the companies that they invest in, and which are the largest ETFs in the sector. 

What Is a Consumer Staples ETF? 

A consumer staples ETF is a type of exchange-traded fund that focuses on tracking the performance of a consumer staples sector index. Also known as consumer non-cyclicals, the consumer staples sector includes companies that produce essential goods and services that people use on a daily basis, regardless of economic conditions.  

Consumer goods and services are considered essential for daily living, and demand for them tends to be relatively stable even during economic downturns. 

Companies Included in Consumer Staples ETFs 

Consumer staples companies typically offer products like food, beverages, household products, personal care items and other essential goods. Examples of companies within the consumer staples sector include those that manufacture and distribute items like food and beverage, cleaning products, tobacco and basic household items. 

Examples of consumers staples companies include: 

• Walmart Inc. (WMT) 
• Costco Wholesale Corporation (COST) 
• Johnson & Johnson (JNJ) 
• General Mills, Inc. (GIS) 
• Coca-Cola (KO) 
• Procter & Gamble (PG)  
• Nestle S.A. (NSRGY) 
• Philip Morris International (PM) 

5 Top Consumer Staples ETFs by AUM

Data as of August 29, 2023. 

Consumers Are Shopping for Essential Goods More 

Consumers may have begun shifting their priorities in the second half of 2023, as buying “experiences” like travel and leisure services give way to more selective purchases of essential goods. Although consumers have money to spend, as unemployment is historically low and wages are up, corporate earnings are revealing that consumers may be starting to become more cautious.  

For example, same store sales growth for 2Q earnings calls from retailers like Best Buy and Target reported declines. Meanwhile, sales for discount retailers like Walmart are still growing. Adding another question about the short-term future of consumer spending, which is two-thirds of the U.S. economy, credit card debt is at record levels and the moratorium on student loans expires in 3Q 2023. 

Advantages and Disadvantages of Consumer Staples ETFs 

Consumer staples ETFs, like any investment option, come with their own set of advantages and disadvantages. Here's an overview of some of the key points to consider: 

Advantages of Consumer Staples ETFs 

• Stability and resilience: Consumer staples companies tend to provide products and services that are considered essential for daily living. This stability can result in more consistent demand for their products, which can contribute to the sector's resilience, even during economic downturns. 
• Dividend income: Many consumer staples companies have a history of paying dividends to their shareholders. This can make consumer staples ETFs appealing to income-seeking investors, as these dividends can provide a regular income stream. 
• Diversification: Investing in a consumer staples ETF allows you to gain exposure to a diversified portfolio of companies within the sector. This diversification can help mitigate the risk associated with investing in individual stocks, as the impact of poor performance from one company can be balanced by the better performance of others. 
• Convenience and low costs: ETFs are traded on stock exchanges like individual stocks, offering the convenience of easy buying and selling. Additionally, ETFs often have lower expense ratios compared to actively managed funds, which can lead to lower investment costs for investors. 
• Long-term potential: Consumer staples companies tend to have an established market presence and brand recognition. While they might not experience the rapid growth of some other sectors, they can offer more stable, long-term potential for investors seeking steady returns. 

Disadvantages of Consumer Staples ETFs 

• Limited growth potential: Consumer staples companies may not experience the same level of rapid growth as companies in sectors like technology or biotech. The relative stability of consumer staples can also lead to comparatively lower returns versus more volatile sectors during bullish market conditions. 
• Market changes: While the consumer staples sector is generally stable, it is not immune to market changes. Shifts in consumer preferences, increased competition, regulatory changes and economic downturns can impact the performance of these companies. 
• Dependency on dividends: While dividends can be attractive, they might also limit the capital available for reinvestment within the company, potentially affecting growth and innovation. 

Bottom Line on Investing in Consumer Staples ETFs 

Some investors use consumer staples ETFs as a way to add stability and defensive characteristics to their portfolio, while others might prefer to balance their exposure to different sectors to achieve diversification. However, it's important to note that all investments carry risks, and the value of an ETF can still fluctuate based on factors such as changes in consumer preferences, competition, economic conditions and more.