Why Is This the Best Time to Bet on Consumer Staples ETFs?

The ongoing U.S. government shutdown, which began on Oct. 1, 2025, is testing an already uncertain economic landscape and could be the catalyst that turns investors toward safe-haven sectors, particularly consumer staples. Resultantly, prominent exchange-traded funds (ETFs) offering exposure to consumer staples companies remain a critical point of interest for investors, with the underlying sector poised for a rebound after a period of underperformance.

A Sector Out of Favor or A Safe Haven in a Storm?

The consumer staples sector, encompassing makers of everyday essentials like food, beverages, and household goods, has been experiencing an unusual period of softness of late, amid a complex macroeconomic backdrop. Major consumer staples ETFs lagged behind other defensive sectors like utilities and healthcare, which have benefited from stable demand and relative pricing power.

For instance, from the beginning of the year till Oct. 1, 2025, Consumer Staples Select Sector SPDR Fund (XLP) was down 0.4%, while utilities ETF Utilities Select Sector SPDR Fund (XLU) surged nearly 16.5% and healthcare ETF Health Care Select Sector SPDR Fund (XLV) gained 4.3%, reflecting cautious investor sentiment despite consumer staples' traditionally defensive nature.

This underperformance was largely driven by a "risk-on" market sentiment, as investors favored high-growth sectors like Artificial Intelligence (“AI”) over defensive plays. The sector also grappled with persistent supply chain challenges arising from tariffs, inflationary pressures on raw materials and rising input costs.

However, the current macro-environment has set the stage for a potential strategic shift. The recent government shutdown has introduced short-term, unquantifiable volatility. Many economists fear an upcoming recession, like the warning that came from Mark Zandi of Moody’s, who stated that the U.S. economy is on the "precipice" of a recession, as reported by financial news platform Marketwatch.

This dual risk—political instability and economic contraction—historically has forced capital out of volatile growth stocks and into predictable, resilient sectors like Consumer Staples, as consumers rarely cut back on necessary items like toothpaste or groceries, regardless of a tightening economy. Empirically, during the 35-day shutdown in 2018-2019, most of the defensive Consumer Staples ETFs gained more than 2%, demonstrating their reliable counter-cyclical nature during government-induced disruption.

Therefore, since consumer staples ETFs have been falling from the beginning of the year till Oct. 1, 2025, current prices offer a potential discount on defensive assets and provide a compelling entry point for investors worried about present market condition.

3 Consumer Staples ETFs to Watch

Consumer Staples Select Sector SPDR Fund (XLP)

This fund offers exposure to U.S. companies from consumer staples distribution & retail, food products; beverages, household products, tobacco; and personal care products industries. Its top three holdings are global consumer staples powerhouses: Walmart (10.66%), Costco Wholesale Corp. (9.55%) and Procter & Gamble (8.33%).

XLP went down 0.5% from the beginning of the year till Oct. 1, 2025 but rose 3.1% between Dec. 22, 2018, and Jan. 25, 2019, during the last U.S. government shutdown. This fund charges 8 basis points (bps) as fees.

Invesco Food & Beverage ETF (PBJ)

This fund provides exposure to companies engaged in the production and distribution of agricultural products, food and beverage products, as well as products related to the development of new food technologies. Its top three holdings include food and grocery delivery provider DoorDash (5.84%), beverage company Monster Beverage (5.57%), and multinational confectionery Hershey (5.49%).

PBJ declined 1.5% from the beginning of the year till Oct. 1, 2025, but rose 5.2% during the last U.S. government shutdown. This fund charges 61 bps as fees.

First Trust NASDAQ Food & Beverage ETF (FTXG)

This fund provides exposure to U.S. food and beverage companies. Its top three holdings are multinational food and beverage manufacturer Mondelez International (8.35%), multinational food processing firm Archer-Daniels-Midland Company (8.28%) and food and beverage manufacturer PepsiCo (7.80%).

FTXG went down 6.6% the beginning of the year till Oct. 1, 2025, but rose 2.4% between Dec. 22, 2018 and Jan. 25, 2019 during the last U.S. government shutdown. This fund charges 60 bps as fees.

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This article originally published on Zacks Investment Research (zacks.com).

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