The Vanguard Consumer Staples Index Fund ETF (VDC) and State Street’s The Consumer Staples Select Sector SPDR Fund (XLP) are two of the largest consumer staples sector ETFs and two of the most popular among individual investors. Many investors compare VDC vs XLP because they are so similar. The funds are nearly identical, especially if we focus on the past 15 years.
A quick reminder that this site does NOT provide investment recommendations. Fund comparisons (such as this one) are not conducted to identify the “best” fund (since that will vary from investor to investor based on investor-specific factors). Rather, these fund comparison posts are designed to identify and distinguish between the fund details that matter versus the ones that don’t.
The Short Answer
The primary difference between the funds is that XLP is a large-cap fund, while VDC includes mid-caps and small-caps.
The Longer Answer
Historical Performance: VDC vs XLP
XLP was launched back in 1998, while VDC was launched in 2004. Since the VDC’s launch, the two funds have performed similarly, with an annualized difference of only .28%. The cumulative performance differential over that timeframe has compounded to nearly 28% though.
Interestingly, if we look at performance from 2007 through early 2022, we find that the annualized performance difference is only .06%! Thus, for the past 15 years, performance has been nearly identical.
Portfolio Exposures: VDC vs XLP
XLP tracks the Consumer Staples Select Sector Index, which is essentially a sub-index of the S&P 500 (which is predominantly composed of large-caps). It has changed over the years, but the index that VDC currently tracks is includes more mid-caps and small-caps (even though it is also predominantly large-caps).
Both VDC and XLP hold essentially 100% stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical geographic exposures.
Market Cap Exposure
As the below data illustrates, XLP primarily holds large-caps, while VDC is a bit more diversified in terms of market cap. Despite this difference, both funds are market-cap weighted and risk/return is overwhelmingly driven by the large-cap exposure.
VDC and XLP are consumer staples ETFs and so their holdings are 100% consumer staples stocks.
Practical Factors: VDC vs XLP
As ETFs, both XLP and VDC are free to trade on many platforms. Bid-ask spreads for both VDC and XLP are extremely low and volume is sufficient to prevent most individual investors from “moving the market.” Investors interested in a mutual fund should read about VDC vs VCSAX (VDC’s mutual fund share class).
The expense ratio for both XLP and VDC is .10%. At these low levels of expense ratios, small differences in expense ratios does not typically matter anyways. Something to keep in mind if one fund or the other decides to reduce fees.
Tax Efficiency & Capital Gain Distributions
XLP has never made a capital gain distribution and VDC has not made one since 2004. I do not expect either fund to make capital gains distributions moving forward (since they are ETFs). In my opinion, these two funds are equally tax-efficient.
The one factor that may sway someone towards XLP is if they are managing some type of option strategy, such as covered calls. The options market for XLP is much more active than for VDC. Of course, if someone wants to trade options without triggering tax consequences in another part of their portfolio, perhaps VDC is the better pick for the non-option holding.
Bottom Line: VDC vs XLP
VDC and XLP are nearly identical in most ways and I personally consider them identical and interchangeable (the period from 2004 through 2006 notwithstanding). I believe investors’ time is better spent evaluating and thinking through more material decisions.
Investors interested in a third consumer staple ETF should check out my post on VDC vs FSTA (Fidelity’s consumer staple ETF).