Investors worried about the U.S. fiscal cliff and another flareup in Europe’s debt crisis are shifting into defensive sectors such as consumer staples ETFs.

“Investors should probably expect a great deal of volatility as we close out the year as more is known about the impending fiscal cliff and if we will go over it to start 2013,” Eric Dutram wrote for Zacks.

Lower volatility, defensive sectors such as consumer staples can be used to limit downside risk. The sector tends to be stable in both normal market conditions, as well as risk-off, and while the dividend payout is not impressively high, the stability and safety makes up for it. The U.S. consumer has shown signs of health, solidifying the case for staples ETFs. [Five ETF Sectors to Watch After Hurricane Sandy]

The Select Sector SPDR Consumer Staples ETF (NYSEArca: XLP) is the most popular staples ETF trading, with $5.75 billion in assets under management. Stocks included in the index range from cosmetics, tobacco, personal care products, and of course food and drinks. The 2.7% yield is complimentary to the low 0.18% expense ratio.

XLP has been outperforming the S&P 500 since mid-September.

The Vanguard Consumer Staples Index Fund (NYSEArca: VDC) has about $1 billion in asset under management and focuses in on direct-to-consumer product companies that are deemed to be nondiscretionary and thus relatively immune from the business cycle. The expense ratio is at 0.19% and the  yield is 2.14% .

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