KXI vs. IYK: Assessing the Moat and Intrinsic Value of Global vs. U.S. Consumer Staples

For a value investor, the choice between these two staples ETFs is a classic trade-off between concentrated quality and diversified resilience. It comes down to whether you prioritize a higher-yielding engine for compounding today or a broader basket that aims to capture global cycles with less volatility.

On the yield side, IYK offers a straightforward, high-quality proposition. The fund delivers a dividend yield of 2.48%, which translates to a steady stream of cash flow. For a patient investor, that income is a direct compounding engine, reinvested to buy more shares and grow the portfolio over time. This yield is supported by a concentrated portfolio of dominant U.S. brands, which often command pricing power and generate reliable cash flows.

KXI, by contrast, builds its case on breadth and risk-adjusted returns. With a total of 118 individual holdings, the fund is a true global basket. Its top holdings-companies like Walmart, Philip Morris, Procter & Gamble, and Coca-Cola-illustrate its geographic diversification, spreading exposure across developed and emerging markets. This diversification is reflected in its risk metrics. KXI boasts a Sharpe ratio of 1.22 compared to IYK's 0.74, and a Calmar ratio of 1.73 versus IYK's 1.23. These higher ratios indicate that KXI has generated superior returns per unit of risk and drawdown, a key advantage for preserving capital over long cycles.

The trade-off is clear. IYK's concentrated portfolio comes with a beta of 1.23, meaning it is more sensitive to broad market swings. KXI's diversified nature provides a smoother ride, as evidenced by its lower maximum drawdown. The value investor must decide: is the higher yield and potential for slightly better long-term total returns from IYK worth the added market sensitivity? Or does the broader, more resilient foundation of KXI, with its better risk-adjusted performance, better align with a long-term compounding strategy?

Evaluating the Quality of the Moats

The true test of a value investment lies in the durability of its underlying businesses. Both IYK and KXI offer exposure to the defensive staples sector, but their moats are built on different foundations. IYK's strength is its concentration on U.S. giants like Procter & Gamble and Coca-Cola. These are companies with decades of brand loyalty, pricing power, and distribution networks that insulate them from economic cycles. This focus provides a direct, high-quality bet on the stability of the domestic consumer-a classic moat attribute. The fund's expense ratio of 0.38% ensures that this quality is delivered efficiently, with minimal cost drag on returns.

KXI, by contrast, constructs its moat through geographic diversification. Its portfolio of 96 global equities includes household names like Walmart, Philip Morris International, and Nestle. This breadth spreads risk across different economies and consumer bases, which can be a powerful buffer during regional downturns. The fund's expense ratio of 0.39% is nearly identical, meaning investors pay a similar price for this global reach. The higher Sharpe ratio we noted earlier suggests this diversification has historically translated into better risk-adjusted returns.

Yet this global approach introduces a key vulnerability: currency translation. When the U.S. dollar strengthens, as it has in recent years, it erodes the reported earnings of KXI's foreign holdings. A strong dollar makes these companies' overseas sales worth less when converted back into dollars for the fund's financials. This is a structural headwind that does not affect IYK's domestic-focused portfolio. For a value investor, this means KXI's intrinsic value is more exposed to a single, macroeconomic variable beyond the control of its managers or the underlying companies.

The bottom line is that both funds offer quality, but in different forms. IYK's moat is the concentrated power of a few U.S. consumer champions, while KXI's is the resilience of a global portfolio. The currency risk for KXI is not a minor detail; it is a material factor that can systematically pressure reported returns and, over time, the fund's compounding path.

Long-Term Compounding and Key Watchpoints

The recent performance gap tells a clear story. Over the past year, KXI has rallied 11.2% while IYK gained 6.2%. This outperformance is a direct result of its global diversification, which has captured strength in non-U.S. markets. Yet for a value investor, a one-year pop is noise. The real test is how each structure holds up through a full market cycle, including the inevitable downturns.

Historically, KXI's broader portfolio has provided a smoother ride in terms of volatility, as shown by its superior Sharpe and Calmar ratios. But its downside risk has been more severe. The fund's worst drawdown of -42.27% far exceeds IYK's -42.64% peak-to-trough decline. This counterintuitive result-where a globally diversified fund suffered a deeper peak drawdown than its concentrated U.S. counterpart-highlights the compounding risk of currency translation. When the dollar strengthens, it can amplify losses on foreign earnings, creating a structural headwind that pressures the fund's net asset value during periods of dollar strength.

For IYK, the watchpoint is sustainability. Its higher yield of 2.48% is a tangible advantage for compounding, but it must be maintained. In a rising rate environment, yields on bonds and other income assets can compress, making the fund's payout more attractive. However, the yield's durability depends on the dividend growth of its underlying U.S. giants. If these companies face persistent margin pressure from inflation or wage growth, their ability to raise dividends could be challenged. The fund's concentrated nature means its income stream is more exposed to the specific fortunes of a few large domestic companies.

Viewed another way, KXI's breadth offers a different kind of resilience. Its global mix can provide a buffer when any single economy stumbles. Yet its higher volatility and currency sensitivity mean its path to compounding is less predictable. IYK's path is more straightforward but potentially more vulnerable to domestic headwinds. The value investor must weigh which structure better preserves capital through the inevitable cycles of the market.