Meet the Low-Cost Vanguard ETF That Went Up on the Worst Day for the S&P 500 Since June 2020

Last week's stock market sell-off was swift and brutal. Investors wasted no time reacting negatively to President Trump's "Liberation Day" tariffs and responses from countries like China.

On April 3, the S&P 500 (SNPINDEX: ^GSPC) fell 4.8%, the worst decline for the S&P 500 since June 11, 2020. The Nasdaq Composite (NASDAQINDEX: ^IXIC) dropped 6%.However, investment management firm Vanguard's exchange-traded fund (ETF) that tracks the consumer staples sector -- the Vanguard Consumer Staples ETF (NYSEMKT: VDC) -- went up slightly on the day. The ETF also outperformed the major indexes the following day -- when the S&P 500 and Nasdaq fell another 5%.

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Year to date, the ETF is down just 0.3% compared to a 13.7% drop in the S&P 500 and a staggering 19.3% decline in the Nasdaq Composite, at the time of this writing. And with a mere 0.09% expense ratio and 2.4% dividend yield, the fund is a low-cost way to generate passive income without racking up high fees.

Here's why the ETF remains a good choice for risk-averse investors who want to gain diversified exposure to a variety of dividend-paying value stocks.

Image source: Getty Images.

Growth stocks are dragging down the S&P 500

One look at the top holdings of the Vanguard Consumer Staples ETF compared to Vanguard S&P 500 ETF (NYSEMKT: VOO), and it's easy to see why the fund is holding up well amid a growth-stock-fueled sell-off.

Data source: Vanguard

Most of the top holdings in the S&P 500 are tech-focused companies that have sold off considerably in 2025. Meanwhile, the largest holdings in the Vanguard Consumer Staples ETF are established, dividend-paying companies whose valuations aren't based on breakneck growth projections.

Most Costco stores are in the U.S., and less than half of U.S. sales are imported from China, Mexico, and Canada. Thus, Costco is fairly resistant to tariffs.

Similarly, Walmart is a mostly U.S. business. Still, its global supply chain makes it more vulnerable to tariffs, so it makes sense why Walmart has been a weaker performance compared to other top holdings in the fund.

Procter & Gamble and Coca-Cola have considerable international exposure, but both companies have high margins and impeccable pricing power, making them well-positioned to pass along higher costs to consumers.

Track records of dividend growth

Consumer staples tend to be a safe sector during times of economic uncertainty because consumers are more likely to reduce discretionary purchases like big-ticket items, dining out at restaurants, and traveling than they are on groceries and household goods.

Many consumer staples companies' value propositions involve steadily growing earnings and returning the majority of profits to shareholders through dividends and buybacks.

Eight of the 10 largest holdings in the Vanguard Consumer Staples ETF are Dividend Kings, which are companies that have paid and raised their dividends for at least 50 years. Costco and Mondelez are the only exceptions.

When the stock market is making new all-time highs, a stock that provides a stable and growing dividend doesn't look all that appealing. But when equity prices are flashing red and portfolio balances are dropping, safe and boring companies can be a great way to collect passive income and sleep easy at night. Companies that have raised their dividends every year, no matter what, provide an extra layer of security.

Using consumer staples stocks to your advantage

As tempting as it may be to smash the sell button on growth stocks and dive headfirst into safe stocks or ETFs, it's never a good idea to overhaul your investment strategy just because there's a stock market sell-off. Rather, a better approach is to ensure you know what you own and why you own it, and that your holdings align with your risk tolerance and investment objectives.

If you're an investor with a long-term time horizon and a high risk tolerance, it's not necessarily a good idea to go overboard with safe stocks. As comforting as dividend stocks and consumer staples may be when the market is going down, the sector has underperformed the S&P 500 over the long term.

Over the last decade, the S&P 500 has produced a total return (which includes dividends) of 193.8%, compared to 113.3% for the Vanguard Consumer Staples ETF. The consumer staples sector tends to be less volatile than a major index like the S&P 500 and has a higher yield and a less expensive valuation. However, over the long term, companies that pour profits back into their businesses to capture opportunities can grow in value faster than companies that pass along the majority of earnings to shareholders instead of reinvesting.

If you're a risk-averse investor more focused on capital preservation than capital accumulation, then investing in a fund like the Vanguard Consumer Staples ETF may be a better choice than an S&P 500 ETF because it contains a lot of growth stocks.

Folks who are closer to retirement may be simply trying to supplement income rather than beat the market. In that case, the Consumer Staples ETF's lower volatility and steady income can help those investors fulfill their financial planning objectives.

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JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Colgate-Palmolive, Costco Wholesale, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Target, Tesla, Vanguard S&P 500 ETF, and Walmart. The Motley Fool recommends Broadcom and Philip Morris International and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.