ETFs for the Cadbury War

Kraft's(KFT Quote) hostile bid for Cadbury(CBY Quote) could be the first chapter in an all-out bidding war that could also involve Hershey(HSY Quote), Pepsi(PEP Quote), Nestle and Mars (with Warren Buffett's cash).

Such a struggle could help to boost shares of Powershares' Dynamic Foods(PBJ Quote), State Street's Consumer Staples Select Sector SPDR Fund(XLP Quote), Vanguard's Consumer ETF(VDC Quote) and iShares' Consumer Goods(IYK Quote).

Exchange-traded funds that track the potential suitors could get a boost from all the attention.

Buy This ETF: PBJ

XLP is the largest fund in this group, with more than 4.5 million shares changing hands each day. The fund's top holdings include consumer staples giants like Procter & Gamble(PG Quote), Wal-Mart(WMT Quote) and Philip Morris(PM Quote). The drawback is that this fund is capitalization weighted and thus has high concentrations of assets in its top holdings. More than 66% of XLP's assets are dedicated its top 10 components.

Although VDC has a nearly perfect tracking correlation with XLP, it tracks 110 companies, as opposed to XLP's 40 holdings. VDC also offers investors large-cap exposure to giants in the consumer goods sector. While this fund may not be as highly concentrated as XLP, it is less liquid. VDC's three-month average daily trading volume is less than 50,000 shares.

IYK offers similar exposure as XLP and VDC but excludes the retail companies found in XLP and VDC. IYK's holdings include large, mature firms that offer stable returns. The average market capitalization of the components in IYK's basket is about $30 billion. IYK's fee of 0.48% is also slightly higher than VDC's 0.25% fee.