Choosing Between XLP and IYK: How Portfolio Construction and Top Holdings Shape Performance and Risk

The consumer staples sector, a cornerstone of , has long attracted income-focused and risk-averse investors. Two prominent ETFs-XLP (State Street Consumer Staples Select Sector SPDR ETF) and IYK (iShares U.S. Consumer Staples ETF)-offer distinct approaches to capturing this sector. While both track the same broad industry, their divergent portfolio constructions, , and cost structures yield markedly different outcomes in performance, , and dividend yields. This analysis evaluates how XLP's concentration in retail giants like Walmart and Costco versus IYK's broader diversification into healthcare and basic materials shapes their risk-return profiles and strategic value for investors.

Portfolio Construction: Concentration vs.

XLP's portfolio is tightly focused on the consumer staples sector, holding 37 companies and allocating 21% of its assets to just two names. This hyper-concentration creates a pure-play exposure to defensive retail and consumer goods, but it also amplifies reliance on the performance of these two stocks. In contrast, IYK holds 55 companies and includes a small tilt toward healthcare , offering a more diversified footprint while still emphasizing consumer staples. This broader approach reduces single-stock risk but dilutes the fund's purity as a consumer staples vehicle.

The divergence in top holdings further underscores their strategies. XLP's top 10 holdings account for 58% of the fund, with no overlap in IYK's top holdings. IYK, meanwhile, spreads its weight more evenly, with its top 10 holdings comprising 34% of the portfolio. For investors prioritizing sector purity, XLP's focused approach may be appealing, but IYK's diversification could mitigate downside risks during sector-specific downturns.

Performance and Risk: Returns, Volatility, and

Historical data reveals a clear edge for IYK in risk-adjusted returns. As of November 30, 2025, , indicating that IYK generates better returns relative to its volatility. Over the past decade, . . . These metrics suggest that IYK's diversified portfolio construction not only smooths out short-term fluctuations but also enhances long-term growth potential.

XLP's underperformance, despite its lower expense ratio, raises questions about the trade-offs of concentration. While its heavy exposure to Walmart and Costco may benefit from the stability of these retail behemoths, it also limits upside potential during periods of sector-wide innovation or diversification. IYK's inclusion of healthcare and basic materials, though modest, appears to provide a buffer against sector-specific shocks, aligning with its superior risk-adjusted outcomes.

Dividend Yields and Income Generation

For income-focused investors, . This advantage stems from XLP's concentration in high-yield retailers like Walmart and Costco, which historically have maintained consistent dividend payouts. However, the sustainability of these yields depends heavily on the financial health of a few companies. IYK's broader portfolio, while offering slightly lower yields, may provide more stable income streams by spreading dividend risk across a larger cohort of companies.

and Cost Efficiency

, making it a more cost-efficient option for long-term investors according to analysis. Over time, these fee differentials can compound meaningfully, particularly for those holding the ETFs in taxable accounts. However, IYK's higher fees are partially justified by its broader diversification and superior performance metrics, which may offset the cost burden for investors prioritizing risk-adjusted returns.

for Investors

The choice between XLP and IYK ultimately hinges on investor priorities. Income-focused investors may favor XLP for its higher dividend yield and lower costs, provided they are comfortable with the concentration risk in Walmart and Costco. Conversely, defensive investors seeking balanced growth and downside protection may prefer IYK's diversified approach, which aligns with its stronger historical performance and positive Sharpe ratio.

For those prioritizing sector purity, XLP remains the clear choice, but its underperformance in risk-adjusted metrics suggests that IYK's hybrid strategy-blending consumer staples with complementary sectors-offers a more robust framework for navigating market uncertainties.

Conclusion

While both XLP and IYK serve as vehicles for consumer staples exposure, their divergent portfolio designs yield distinct outcomes. XLP's concentrated holdings and lower fees appeal to cost-conscious investors, but its reliance on a narrow set of companies and subpar risk-adjusted returns pose challenges. IYK, with its broader diversification and superior performance, emerges as a more strategically sound option for investors seeking balanced growth and defensive resilience. In an era marked by economic volatility, the latter's ability to hedge against sector-specific risks while delivering competitive returns may prove increasingly valuable.