Choosing Between XLP and RSPS for Consumer Staples Exposure: Cost Efficiency, Risk Diversification, and Long-Term Performance Trade-Offs

Investors seeking exposure to the U.S. consumer staples sector face a critical decision when selecting between the State Street Consumer Staples Select Sector SPDR ETF (XLP) and the Invesco S&P 500 Equal Weight Consumer Staples ETF (RSPS). While both funds target the same sector, their divergent approaches to cost efficiency, risk management, and long-term returns create distinct trade-offs. This analysis evaluates these factors to help investors align their choices with their financial goals.

Cost Efficiency: XLP's Low Fees Outpace RSPS

Cost efficiency is a cornerstone of long-term investment success, and XLP holds a clear advantage over RSPS in this regard. According to a report by Yahoo Finance, XLP's expense ratio stands at 0.08% in 2025, while RSPS charges 0.40%. For a $10,000 investment, this translates to annual fees of $8 for XLP versus $40 for RSPS according to Fool's analysis. Over time, these differences compound significantly.

A five-year performance comparison reveals that $1,000 invested in XLP grew to $1,180, whereas the same amount in RSPS declined to $992 according to Nasdaq data. This stark contrast underscores how high fees can erode returns, particularly in a sector known for its defensive characteristics but limited growth potential.

Risk Diversification: Market-Cap vs. Equal-Weight Strategies

The structural differences between XLP and RSPS also shape their risk profiles. XLP employs a market-cap-weighted methodology, allocating greater exposure to industry giants like Walmart, Procter & Gamble, and Costco according to The Globe and Mail analysis. This approach mirrors the broader sector's concentration in large-cap stocks, which can stabilize performance during market volatility. Conversely, RSPS uses an equal-weighted strategy, distributing holdings evenly across 37–38 companies according to LPL Research. This reduces reliance on any single stock, potentially mitigating downside risk if a dominant player underperforms. However, data from Nasdaq indicates that XLP's maximum drawdown over five years was -16.32%, compared to RSPS's -18.61% according to Nasdaq analysis, suggesting that XLP's market-cap weighting may offer marginally better resilience during downturns.

Recent market trends further contextualize these strategies. As noted in a 2025 LPL Research analysis, market corrections have been shallow and short-lived, with average drawdowns of just 1.1% and durations of 3.5 days according to LPL analysis. While neither ETF's specific performance during these periods is detailed, the broader environment implies that both funds likely experienced limited volatility. For investors prioritizing diversification beyond sector leaders, RSPS's equal-weighting remains appealing, but XLP's liquidity and larger asset base according to The Globe and Mail may better accommodate large trades and reduce bid-ask spreads.

Long-Term Performance: Compounding the Cost Advantage

The interplay of fees and volatility directly impacts long-term returns. XLP's lower expense ratio and slightly reduced beta (0.50 vs. RSPS's 0.52 according to Nasdaq analysis) position it as a more stable, cost-effective option for patient investors. A five-year growth analysis highlights this: XLP's $1,000 investment reached $1,180, while RSPS's equivalent investment lagged at $992 according to Nasdaq analysis. This underperformance, despite both ETFs tracking the same sector, underscores the compounding drag of RSPS's 0.40% fee. For investors with a horizon of a decade or more, such disparities can meaningfully alter wealth accumulation trajectories.

Strategic Considerations for Investors

The choice between XLP and RSPS ultimately hinges on investor priorities. XLP's low cost, liquidity, and moderate volatility make it ideal for long-term, passive investors seeking to minimize fees and capitalize on the consumer staples sector's defensive traits. RSPS, meanwhile, caters to those prioritizing diversification, particularly if they anticipate outperformance from mid-tier or smaller consumer staples companies. However, given the sector's historically low growth rates and the drag of RSPS's higher fees, the latter's structural advantages may not justify its cost for most investors.

Conclusion

In the XLP vs. RSPS debate, cost efficiency and long-term performance tilt decisively in favor of XLP. While RSPS offers a more diversified portfolio, its 0.40% expense ratio and weaker five-year returns highlight the trade-offs inherent in its structure. For investors seeking a balance of affordability, stability, and sector alignment, XLP emerges as the more compelling choice. As always, aligning fund selection with individual risk tolerance and financial objectives remains paramount.