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Investing in consumer staples stocks

A sector that is defensive in an economic downturn.

Consumer staples stocks are not going away. These companies are essential to our daily life and do well even if the economy is waning. But investing in consumer staples stocks may not suit every type of investor in Australia.

What are consumer staples stocks?

The consumer staples sector is one of the stock market’s 11 sectors and is sometimes called the consumer defensive sector. It includes companies that produce goods and services that people need daily, such as food, clothing, and household and personal care products. This category also includes alcohol and tobacco.

Consumer staples stocks are goods that are always in demand. Consumers generally buy these products regardless of their financial situation or economic stability.

What industries does it include?

Consumer staples stocks can be broken down into the following six industries:

  • Beverages. Brewers, wineries, distillers and soft drink producers.
  • Food and staples. Companies that distribute and sell food and pharmaceutical drugs to other companies.
  • Food products. This industry encompasses all agricultural goods, and packaged foods and meats.
  • Household products. These companies sell non-durable household essentials, like detergent, soap and diapers.
  • Personal products. Manufacturers of personal health care and beauty products.
  • Tobacco. Those that grow and sell tobacco products, like cigarettes and cigars.

Investing in consumer staples stocks vs. consumer discretionary stocks

Consumer staples stocks provide goods and services that are essential for daily life. People regularly buy these items — like milk and bread — regardless of the economy.

On the other hand, consumer discretionary stocks tackle goods and services that you may enjoy but are unnecessary to live.

For example, you might buy things like a new surfboard or a new camper if you have the extra income. But if you lost your job or if the economy was declining, you might reduce or eliminate these items from your budget.

How to invest in the consumer staples sector

You’ve got two main options for investing in the consumer staples sector in Australia: investing in consumer staples stocks or exchange-traded funds (ETFs). With a particular stock, you purchase shares of a specific company. This option is highly liquid but is riskier than an ETF. Sector-tracking ETFs give you a basket of securities, which offers portfolio diversity but has higher fees.

What stocks are in the consumer staples sector?

What ETFs track the consumer staples sector?

A few popular consumer staples ETFs include:

  • iShares Global Consumer Staples (IXI)
  • Vanguard Consumer Staples ETF (VDC)

How is the consumer staples sector performing?

Use the graph below to track how the Consumer Staples Select Sector SPDR ETF (XLP) has been performing over the past three months, year and five years. Tracking the performance of this ETF is one way to gauge how the sector as a whole is doing.

Why invest in consumer staples stocks?

Since the demand for consumer staples doesn’t slow even in a weak economy, the sector is noncyclical. These stocks are less susceptible to the swings of the stock market when consumer spending on luxury goods and nonessentials rises and falls.

The consumer staples sector outperformed the broader S&P 500 index during the last three recessionary periods. For example, during the Great Recession of 2008, the consumer staples sector returned 13.7% from 2007 to 2009, compared to the broader S&P 500 index decline of 5%.

Consumer staples stocks generally see slow and steady growth and can help diversify your portfolio. An added perk is its higher dividend yield than the S&P 500 Index — even during a recession.

What unique risks does the consumer staples sector face?

Even though the consumer staples sector will likely always be around, they face unique challenges today.

  • Slow returns. Consumer staples stocks make most of their return when the market is falling. When the economy is thriving, the sector may underperform or see very slow growth, which may not suit investors’ appetites.
  • Rising interest rates. Higher interest rates usually mean that borrowers end up paying more for their purchases. If interest rates go up, consumer spending may drop, affecting sector performance.
  • Changing consumer preferences. Customers have shifted their buying habits to include e-commerce and specialty brands, such as organic, fresh options. Companies need to continually keep in touch with consumers as Australians stray from buying traditional brands through old-school retail outlets.

Compare stock trading platforms

To invest in stocks or ETFs, you'll need a brokerage account in Australia. Use the table below to compare your options and find the best fit.

Name Product Price per trade Inactivity fee Asset class International
eToro
Finder AwardExclusive
eToro
$0
US$10 per month if there’s been no log-in for 12 months
ASX shares, Global shares, US shares, ETFs
Yes
Finder exclusive: Get 12 months of investment tracking app Delta PRO for free when you fund your eToro account (T&Cs apply).
CFD service. Capital at risk.
Join the world's biggest social trading network when you trade stocks, commodities and currencies from the one account.
CMC Invest
Finder Award
CMC Invest
$0
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
$0 brokerage on US, UK, Canadian and Japanese markets (FX spreads apply).
Trade over 45,000 shares and ETFs from Australia and 15 major global markets. Plus, buy Aussie shares or ETFs for $0 brokerage up to $1,000 (First buy order of each security, each day - excludes margin loan settled trades).
Moomoo Share Trading
US$0.99
$0
ASX shares, Global shares, US shares, ETFs
Yes
Finder exclusive: Get an additional 30 days on top of the regular brokerage-free period for new accounts. T&Cs apply.
Trade shares on the ASX, the US markets and buy ETFs with Moomoo. Plus join a community over 20 million investors.
Spaceship US Investing
US$0
$0
US shares, ETFs
Yes
Dive into US markets with $0 brokerage, starting with just a $10 investment.
Unlock US stocks and ETFs with minimal entry barriers, offering straightforward, low-cost options for new and seasoned investors.
Tiger Brokers
US$2
$0
ASX shares, Global shares, US shares, ETFs
Yes
Finder exclusive: 10 no-brokerage US or ASX market trades in the first 180 days + 7% p.a. on uninvested cash with first deposit of any amount, plus US$30 TSLA + US$30 NVDA shares with deposits up to AU$2000. T&Cs apply.
Trade Australian, US and Asian stocks with no minimum deposit on Tiger Broker’s feature-packed platform.
Webull
US$0.25
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
Sign up & deposit $200 to get $100 of rewards value, or deposit $1,000 to get $200 worth. Up to $5,450 value available. T&Cs apply.
Trade ASX and US stocks and US options, plus gain access to inbuilt news platforms and educational resources. You can also start trading for less with fractional shares.
Saxo Invested
US$1
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
Access 22,000+ stocks on 50+ exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Bottom line

The consumer staples sector may be a good choice if there are signs of a recession on the horizon or if you don’t mind slow, long-term growth.

Explore online trading platforms to find a brokerage firm that’s right for your financial goals.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

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