VDC: Why Charlie Munger and JPMorgan Would Approve

As the summer of 2025 kicks off, investor concerns about stagflation—that painful mix of rising inflation and slowing growth—are reemerging. In this environment, consumer staples may again step into the spotlight, just as they did in the first quarter. The Vanguard Consumer Staples ETF (VDC) was a relative outperformer in the first quarter of 2025 with a 4.1% gain compared to a 4.3% decline for the S&P 500, as fears about a trade war and an economic slowdown pushed investors toward stability. 

While VDC lagged tech stocks during the April-May rebound, the tide may be turning again. With declining consumer sentiment, slowing discretionary spending and tariff-driven inflation risks, VDC’s top holdings, such as Costco Wholesale Corp. (COST) and Walmart Inc. (WMT), may be set to regain leadership as shoppers refocus on essentials and cost-conscious habits.

VDC, Charlie Munger and Costco for Stagflation

Costco, which holds the top spot in VDC with a 12.7% allocation, has long been praised by legendary investors like Charlie Munger for its operational discipline and exceptional value proposition. In a world where inflation is squeezing household budgets, Costco’s bulk-buy model and loyal membership base offer a powerful combination of affordability and customer retention.  

Its ability to drive strong revenue growth even during economic downturns, thanks to recurring income from memberships and demand for essentials, positions it well in the current macro backdrop. In an environment where consumer spending is shifting back toward necessity and away from luxury, Costco's business model looks increasingly resilient.

Walmart: A ‘Port in the Storm’ During Economic Headwinds

Walmart, VDC’s second-largest holding at 12.3%, is also benefiting from the shift back to essentials. As JPMorgan analyst Chris Horvers recently noted, Walmart is a “port in the storm,” with about 70% of its business in food, making it well-positioned to endure downturns. The analyst sees Walmart shares climbing 33% over the next 18 months to $130, as reported by Yahoo! Finance.

Historically, Walmart has gained market share when consumers trade down from higher-end retailers, and its aggressive pricing helps it maintain competitive strength even in challenging times. As Americans stretch budgets and reevaluate spending habits, Walmart’s massive scale, grocery dominance and evolving e-commerce strategy could help it outperform the broader S&P 500 in a potentially stagflationary environment, even as it cautions shareholders about the potential for rising prices.

VDC, Economic Outlook: Defensive and Not Without Risk

For investors seeking shelter from renewed macro headwinds, Vanguard’s VDC offers a compelling option. Anchored by stalwarts like Costco and Walmart, the fund may repeat its first-quarter outperformance if stagflationary pressures intensify. Still, consumer staples stocks are not immune to downside risk—especially if broader market volatility spikes or inflation squeezes corporate margins. 

As always, investors should consider their risk tolerance and investment horizon. While VDC offers a more defensive sector play than the tech-heavy S&P 500, careful positioning remains crucial in this uncertain economic environment.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in ETFs involves risks, and investors should carefully consider their investment objectives and risk tolerance before making any investment decisions.

At the time of publication, Kent Thune did not hold a position in any of the aforementioned securities.