3 Consumer Staples ETFs for Stability in a Volatile Market

Key Points

• Consumer staples ETFs may appeal to investors seeking a hedge against market volatility amid ongoing inflation concerns, potential future tariffs, and other instability.
• The consistent demand for many consumer staples products can lead companies in the sector to experience fairly steady performance in challenging times.
• PSL, KXI, and PBJ are three consumer staples ETFs worth a closer look.

As reports that inflation heated up in January 2025 emerged on February 12, the market shuddered, with the Dow dropping by more than 300 points in morning trading. The recent Consumer Price Index report may be enough to prompt investors to take a cautious stance, particularly as the impact of recent aluminum and steel tariffs has yet to be seen and the threat of tariffs on Mexican and Canadian goods remains in play.

In periods of market uncertainty, the consumer staples sector can be a defensive choice for investors not looking to expose themselves to a significant degree of risk. A consumer staples ETF can be even more of a defense play, as it provides automatic diversification that can cut down on the level of risk one is likely to find investing in individual names. In many cases consumer staples funds will not generate significant returns—given the strong performance of the S&P 500 in recent years, they may fail to match the market over this period—but they can be a good temporary hedge against short-term volatility.

Invesco Dorsey Wright Consumer Staples Momentum ETF Identifies Consumer Staples Stocks With Strong Momentum

The Invesco Dorsey Wright Consumer Staples Momentum ETF NASDAQ: PSL identifies companies in the consumer staples sector that have relative strength compared with their sector peers, meaning that they have outperformed those rivals over a given time period. The fund holds stocks across the market capitalization spectrum, which may mean that it's a slightly more aggressive (and thus riskier) play compared with some of the other consumer staples ETFs available. As of February 7, 2025, more than half of PSL's assets are allocated toward small-cap stocks.

As of February 12, PSL has a one-year return of nearly 21%, meaning that it has performed roughly in line with the broader market over the last 12 months. However, PSL's year-to-date return is 6.2%, which is about double the return of the S&P over that period, suggesting that the fund is off to a strong start in the new year.

PSL's expense ratio of 0.60% is somewhat higher than some of the inexpensive consumer staples funds on the market, making this an appealing prospect for investors looking for an ETF that has a more targeted approach than a broad sector fund. But PSL's strong performance in the last several weeks in particular—the Consumer Staples Select Sector SPDR Fund NYSEARCA: XLP has only returned 2.7% year-to-date—may entice some investors.

iShares Global Consumer Staples ETF: Global Focus on Consumer Staples

If PSL is too costly, consider the iShares Global Consumer Staples ETF NYSEARCA: KXI. With an expense ratio of 0.41% the fees for this fund come in about a third lower than PSL's. Another benefit of KXI is its broad focus—the fund holds consumer staples names from all around the world, with a focus on developed markets.

On the other hand, on a company-by-company basis KXI is not the most diversified fund in the consumer staples area. With just under 100 holdings, the top 10 names account for more than half of all invested assets. Whether you see this as a benefit or a drawback depends upon how much you'd like to focus on the biggest names in the consumer staples space—major defensive retailers like Costco Wholesale Corp. NASDAQ: COST tend to see outsized allocations in KXI's portfolio.

In the last year KXI has achieved a 7.2% return, below the broader market's. But, like PSL, it has outpaced the S&P 500 so far in 2025, with a 3.1% return year-to-date as of February 11.

Invesco Food & Beverage ETF: Focus on Food Names

While consumer staples products include a multitude of household goods and everyday items, the Invesco Food & Beverage ETF NYSEARCA: PBJ is specifically focused on comestibles. It's not a pure play in the sector, as PBJ also includes some consumer discretionary companies.

PBJ's expense ratio is relatively high at 0.62%, but this is likely because of its complex methodology which considers a multitude of factors like price momentum, earnings momentum, quality, management action, and value. For investors concerned about the impact of potential geopolitical instability on the global food and beverage market, PBJ may appeal due to its singular focus on U.S. firms.