Capital-Weighted vs. Equal-Weight Consumer Staples: Which ETF Fits Your Portfolio Strategy?

Quick Comparison - What Makes Them Different

The Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSEMKT: RSPS) and State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT: XLP) both track the same sector but take fundamentally different approaches. While RSPS employs an equal-weighting methodology where each of its 38 holdings receives equivalent portfolio allocation, XLP uses market-cap weighting that concentrates assets in the sector’s largest players. This divergence in approach—combined with stark differences in fees and fund size—creates two distinct investment profiles worth examining.

The Cost Advantage: Why Expense Ratios Matter

When comparing ongoing investment costs, the difference is striking. XLP charges just 0.08% annually, while RSPS carries a 0.40% expense ratio. For a $100,000 investment, this translates to $40 annually in additional fees with RSPS versus just $8 with XLP. Both funds generate comparable income, with dividend yields hovering around 2.7-2.8%, meaning cost—not income generation—represents the primary operational distinction.

Beyond expense ratios, fund size dramatically impacts tradability. XLP manages $15.5 billion in assets under management with exceptional trading liquidity, while RSPS operates at a considerably smaller scale with $237.2 million AUM. This size differential means XLP allows investors to execute large positions without significantly moving the market, while RSPS may face execution challenges for substantial trades.

Inside the Holdings: Philosophy and Portfolio Construction

Understanding what each fund actually holds reveals the core philosophical difference. XLP concentrates on sector heavyweights—its top holdings include Walmart (NYSE: WMT), Costco Wholesale (NASDAQ: COST), and Procter & Gamble (NYSE: PG). These mega-cap retailers and consumer goods manufacturers can represent outsized portions of the fund due to their larger market capitalizations. This concentration means the fund’s performance is heavily influenced by how a handful of companies perform.

The RSPS list of top positions tells a completely different story. By forcing equal weighting across all 38 holdings, RSPS elevates smaller and mid-tier players like Monster Beverage (NASDAQ: MNST), Bunge Global (NYSE: BG), and Dollar Tree (NASDAQ: DLTR) to prominence within the fund. These securities would occupy minimal positions in a traditional market-cap weighted structure, but RSPS gives them substantial influence. For investors uncomfortable with the concentration risk inherent in XLP, this equal-weight methodology offers a meaningful alternative.

Recent Performance: Numbers and Context

Over the trailing five years, a $1,000 investment would have grown to $1,186 in XLP but only $990 in RSPS—a 196-point difference. This outperformance stems directly from the strength of mega-cap retailers during this period. The one-year returns further illustrate the gap: XLP declined 4.5% while RSPS fell 6.6%. XLP’s beta of 0.46 suggests lower volatility compared to RSPS’s beta of 0.41, though the maximum drawdown comparison is more nuanced: XLP experienced an 16.32% peak-to-trough decline versus RSPS’s 18.61% over five years.

However, recent performance shouldn’t overshadow the structural advantages and disadvantages of each fund. XLP’s outperformance reflects the exceptional strength of companies like Walmart during periods of economic caution, when consumers retrench spending toward established retailers and trusted brands. But this concentration means investors are betting on continued dominance by these specific names.

The Investor Decision Matrix

Choose XLP if you:

• Prioritize cost efficiency and minimal expense drag
• Value liquidity for substantial positions
• Believe sector leadership will remain concentrated in proven mega-cap retailers
• Accept concentration risk for potential outperformance

Consider RSPS if you:

• Prefer exposure to smaller and mid-cap consumer staples names
• Want to diversify beyond sector giants
• Believe capital may rotate toward underrepresented companies within the staples universe
• Are willing to pay higher fees for a different weighting philosophy

Market Context: Why This Matters Now

Consumer staples traditionally serve as defensive positions when economic uncertainty rises. Yet this year’s performance has challenged that narrative, with tariff concerns and inflation pressures weighing on the entire sector. Neither XLP nor RSPS has captured the AI-driven gains seen in technology stocks, meaning both funds appear attractive primarily as diversification tools rather than growth engines.

If market sentiment shifts toward defensive positioning, the structural differences between these funds become more pronounced. XLP’s size and the performance of its anchor holdings—particularly large-cap retailers and established consumer brands—could support outperformance. Conversely, if capital rotation favors overlooked names within consumer staples, RSPS’s equal-weighting approach and its exposure to mid-tier players might gain traction.

Final Thoughts

The choice between XLP and RSPS fundamentally comes down to your philosophy about company size, fee sensitivity, and sector positioning. XLP delivers efficiency and proven outperformance through mega-cap exposure at minimal cost. RSPS offers diversification and access to an alternative index construction method at the price of higher fees and lower liquidity. Both serve legitimate roles within diversified portfolios, but for most investors prioritizing cost and liquidity, XLP presents the more practical choice.