By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panelists generally agreed that both XLP and FSTA have significant risks due to their heavy exposure to high-multiple retail stocks like WMT and COST, which could compress in valuation if consumer spending softens or margins stall. However, they disagreed on whether FSTA's mid-cap exposure provides a hedge against this risk or amplifies it.
Risk: Valuation compression in top holdings (WMT and COST) due to potential slowdown in consumer discretionary spending or margin expansion
Opportunity: None explicitly stated
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
The Fidelity MSCI Consumer Staples Index ETF (NYSEMKT:FSTA) offers broader diversification through its 96 holdings, while the State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) provides a more concentrated portfolio with higher historical dividend yields.
Investors often turn to the consumer staples sector for stability and defensive positioning by holding companies that produce essential goods like food and hygiene products. While FSTA and XLP both target this space with identical, ultra-low costs, they differ significantly in portfolio concentration, liquidity, and historical yield payouts.
| Metric | FSTA | XLP | |---|---|---| | Issuer | Fidelity | SPDR | | Expense ratio | 0.08% | 0.08% | | 1-yr return (as of June 16, 2026) | 5.4% | 5.4% | | Dividend yield | 2.2% | 2.6% | | Beta | 0.55 | 0.54 | | AUM | $1.4 billion | $14.6 billion |
Both funds are highly cost-efficient, each charging just 0.08% annually. However, XLP has historically provided a higher payout to investors, with its trailing-12-month dividend yield sitting 40 basis points above the yield offered by Fidelity’s fund.
| Metric | FSTA | XLP | |---|---|---| | Max drawdown (5 yr) | (16.6%) | (16.3%) | | Growth of $1,000 over 5 years (total return) | $1,408 | $1,380 |
The SPDR ETF focuses on large-cap stability by tracking consumer staples companies within the S&P 500. Its portfolio is relatively concentrated, with just 36 holdings, and its sector allocation consists of consumer defensive at 99% and consumer cyclical at 1%. Its largest positions include Walmart (NASDAQ:WMT) at 11.03%, Costco Wholesale (NASDAQ:COST) at 9.05%, and Procter & Gamble (NYSE:PG) at 7.2%. The fund was launched in 1998 and has a trailing-12-month dividend payout of $2.18 per share.
In contrast, the Fidelity ETF provides broader market reach by tracking the MSCI USA IMI Consumer Staples 25/50 Index with 96 holdings. It allocates 98% to consumer defensive and 2% to consumer cyclical stocks. Its top holdings are also Walmart, Costco, and P&G at 14.62%, 11.69%, and 8.69%, respectively. Fidelity’s fund, which was launched in 2013, paid $1.16 per share in dividends over the trailing 12 months. FSTA’s broader approach results in slightly more exposure to mid-cap companies compared to the SPDR fund.
For more guidance on ETF investing, check out the full guide at this link.
On a surface level, these two ETFs look pretty alike: same expense ratios, same one-year returns. Their identical top 10 holdings account for roughly the same proportion of their portfolios (between 62% and 65%).
Where the SPDR and Fidelity ETFs do differ, it's pretty stark. FSTA holds well over twice as many stocks, for one thing. And despite the diversification benefits one might assume would accompany that, the fact is the top three holdings account for about 36% of the portfolio. (The top three holdings only make up 27% of XLP's portfolio.) Investors' comfort level with that concentration risk may vary; Walmart and Costco delivered strong returns over the past half-decade, but P&G has trailed the market by more than 60 percentage points over the past five years. That said, it's not a foregone conclusion Walmart and Costco will continue to deliver strong returns. Both stocks have P/E ratios above 40, somewhat steep for a retail name. Investors are clearly already pricing in robust growth for both stocks.
One final key difference is their assets under management. XLP has more than $14 billion in AUM, while FSTA has about 1/10th as much. Accordingly, their average trading volume has a similar differential. Given my druthers, I'd be more inclined to buy shares of the SPDR ETF because it's less concentrated in the top names and offers more liquidity. XLP’s slightly higher dividend yield is just the cherry on top.
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Erin Kennedy has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"The high concentration in overvalued retail stocks like Walmart and Costco undermines the defensive utility of these ETFs, making them vulnerable to significant multiple compression."
The article frames this as a choice between liquidity and yield, but it misses the primary risk: valuation compression in the top holdings. Both XLP and FSTA are heavily concentrated in WMT and COST, which are currently trading at forward P/E ratios exceeding 40x—levels historically unsustainable for defensive staples. While XLP offers superior liquidity and a slight yield edge, investors are essentially buying 'growth-priced' retail rather than traditional defensive value. If consumer discretionary spending softens or margin expansion stalls, the 'defensive' nature of these ETFs will fail to protect capital. I am neutral on the sector, as the current concentration in high-multiple retail stocks creates a significant downside risk that index diversification cannot mitigate.
One could argue that the premium multiples for WMT and COST are justified by their aggressive expansion into high-margin advertising and e-commerce, transforming them from traditional staples into platform-based growth engines.
"FSTA's 96-holding structure concentrates MORE capital in its top-3 names than XLP does, making its 'diversification' claim mathematically false and its risk profile worse for defensive investors."
The article frames this as a straightforward diversification vs. yield trade-off, but misses a critical structural problem: FSTA's 96-holding 'diversification' is illusory. With top-3 holdings at 36% of AUM versus XLP's 27%, FSTA actually concentrates MORE risk in mega-cap winners while diluting returns with 60+ mid-cap laggards. The article acknowledges this contradiction but then recommends XLP anyway—on liquidity grounds. That's backwards. If you're buying a defensive staples ETF, you're not day-trading it; AUM size matters far less than whether your diversification actually reduces idiosyncratic risk. FSTA's structure suggests it doesn't.
XLP's 36-stock portfolio may be too concentrated in mature, fairly-valued names (WMT and COST both >40x P/E), leaving little room for upside. FSTA's broader index exposure, despite top-heavy weighting, captures smaller staples players with potential mean-reversion upside if mega-caps stumble.
"XLP's superior liquidity and yield outweigh FSTA's marginal return edge for most investors focused on staples exposure."
The article correctly flags XLP's edge in liquidity ($14.6B AUM, far higher volume) and 40bp yield advantage, yet underplays that FSTA delivered modestly superior 5-year total returns ($1,408 vs $1,380) despite greater top-three concentration. Both ETFs embed heavy Walmart and Costco exposure at stretched P/Es above 40, leaving them vulnerable to any slowdown in those names. XLP's tighter 36-stock basket and S&P 500 focus may actually amplify single-stock risk rather than reduce it once the largest holdings are isolated.
FSTA's broader 96-name mandate and 2013 launch could still deliver better long-term risk-adjusted results if mid-cap staples begin to outperform the mega-caps that dominate both funds today.
"Cost is a tie, but diversification and liquidity differences in the two ETFs will matter more as rates and inflation move, potentially skewing outcomes for different cycle scenarios."
Take: Both ETFs trade at 0.08% expense and target staples, but the article glosses over real diversification nuances. Fidelity’s FSTA has more holdings (96) but its top three weights total about 36% of assets, vs XLP’s roughly 27% in the top three, meaning FSTA is not the diversification winner. XLP’s far larger AUM (about $14.6B) and higher 12-month liquidity matter for larger trades and tighter spreads, even with similar trailing yields (2.2% vs 2.6%). Second-order risks: mid-cap exposure in FSTA and index-methodology differences (MSCI IMI vs S&P 500 staples) can produce material divergences when rates shift or inflation unwinds. For risk-averse investors, liquidity and yield trade-offs favor XLP; for tilt toward growth, FSTA could outperform in the right cycle.
The stronger countercase: broader counts do not guarantee lower risk here—FSTA is actually more top-heavy (top 3 ≈ 36%), so diversification benefits may be overstated. If mega-cap staples outperform, XLP’s concentration could amplify gains but also risk missing broader market moves.
"The valuation of staples is based on unsustainable pricing power that faces significant regulatory and inflationary headwinds."
Gemini highlights WMT and COST valuations, but both panelists overlook the sector's regulatory and supply-chain exposure. These staples aren't just 'platform-based growth engines'; they are increasingly vulnerable to antitrust scrutiny and labor cost inflation. If these firms lose their pricing power, the 40x P/E multiples will collapse regardless of liquidity. I disagree that FSTA’s mid-cap exposure offers a safety net; it’s merely a drag on performance when the mega-cap momentum inevitably reverses.
"FSTA's mid-cap tail isn't performance drag—it's structural downside protection if mega-cap staples face regulatory or labor headwinds."
Gemini's antitrust and labor-cost inflation angle is real, but it applies equally to both ETFs—not a differentiator. The actual divergence: XLP's S&P 500 staples mandate excludes mid-caps entirely, while FSTA's MSCI IMI exposure captures smaller players with lower labor leverage and less regulatory exposure. If WMT/COST face pricing-power erosion, FSTA's 60+ laggards become hedges, not drags. Gemini conflates sector risk with fund structure.
"FSTA mid-caps likely worsen downside if sector pricing power fades due to higher leverage."
Claude assumes FSTA's mid-caps hedge antitrust and labor risks, yet smaller staples typically carry higher operating leverage and thinner margins, amplifying losses if pricing power erodes industry-wide. This structure could widen underperformance versus XLP once WMT and COST multiples compress, rather than providing the buffer suggested.
"Mid-cap diversification does not reliably hedge mega-cap risk; in downturn mid-caps can magnify losses and liquidity risk can erode diversification benefits."
To Grok: I think the idea that FSTA's 60+ laggards automatically hedge mega-cap risk is overstated. In a downturn, smaller staples often show higher operating leverage and more volatile margins, so mid-caps can magnify losses if pricing power erodes. Moreover, liquidity stress can widen spreads and increase tracking error for a 96-name fund, eroding diversification benefits when WMT/COST drive most returns. The hedge is conditional on a favorable regime, not a universal truth.
The panelists generally agreed that both XLP and FSTA have significant risks due to their heavy exposure to high-multiple retail stocks like WMT and COST, which could compress in valuation if consumer spending softens or margins stall. However, they disagreed on whether FSTA's mid-cap exposure provides a hedge against this risk or amplifies it.
None explicitly stated
Valuation compression in top holdings (WMT and COST) due to potential slowdown in consumer discretionary spending or margin expansion