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BND vs. XLF: What’s The Difference?

The Vanguard Total Bond Market Index Fund ETF Shares (BND) and the Financial Select Sector SPDR Fund (XLF) are both among the Top 100 ETFs. BND is a Vanguard Intermediate-Term Bond fund and XLF is a SPDR State Street Global Advisors Financial fund. So, what’s the difference between BND and XLF? And which fund is better?

The expense ratio of BND is 0.09 percentage points lower than XLF’s (0.03% vs. 0.12%). BND is mostly comprised of AAA bonds while XLF has a high exposure to the financial services sector. Overall, BND has provided lower returns than XLF over the past ten years.

In this article, we’ll compare BND vs. XLF. We’ll look at risk metrics and performance, as well as at their fund composition and holdings. Moreover, I’ll also discuss BND’s and XLF’s industry exposure, portfolio growth, and annual returns and examine how these affect their overall returns.

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Summary

BNDXLF
NameVanguard Total Bond Market Index Fund ETF SharesFinancial Select Sector SPDR Fund
CategoryIntermediate-Term BondFinancial
IssuerVanguardSPDR State Street Global Advisors
AUM312.15B40.81B
Avg. Return4.09%12.17%
Div. Yield2.02%1.57%
Expense Ratio0.03%0.12%

The Vanguard Total Bond Market Index Fund ETF Shares (BND) is a Intermediate-Term Bond fund that is issued by Vanguard. It currently has 312.15B total assets under management and has yielded an average annual return of 4.09% over the past 10 years. The fund has a dividend yield of 2.02% with an expense ratio of 0.03%.

The Financial Select Sector SPDR Fund (XLF) is a Financial fund that is issued by SPDR State Street Global Advisors. It currently has 40.81B total assets under management and has yielded an average annual return of 12.17% over the past 10 years. The fund has a dividend yield of 1.57% with an expense ratio of 0.12%.

BND’s dividend yield is 0.45% higher than that of XLF (2.02% vs. 1.57%). Also, BND yielded on average 8.07% less per year over the past decade (4.09% vs. 12.17%). The expense ratio of BND is 0.09 percentage points lower than XLF’s (0.03% vs. 0.12%).

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Fund Composition

Holdings

BND - Holdings

BND Bond SectorsWeight
AAA68.72%
BBB16.17%
A11.87%
AA3.34%
Below B0.01%
B0.0%
BB0.0%
US Government0.0%
Others-0.11%

BND’s Top Bond Sectors are ratings of AAA, BBB, A, AA, and Below B at 68.72%, 16.17%, 11.87%, 3.34%, and 0.01%. The fund is less weighted towards B (0.0%), BB (0.0%), and US Government (0.0%) rated bonds.

XLF - Holdings

XLF HoldingsWeight
Berkshire Hathaway Inc Class B12.83%
JPMorgan Chase & Co11.47%
Bank of America Corp7.57%
Wells Fargo & Co4.56%
Citigroup Inc3.56%
Morgan Stanley3.32%
Goldman Sachs Group Inc3.15%
BlackRock Inc3.02%
Charles Schwab Corp2.66%
American Express Co2.62%

XLF’s Top Holdings are Berkshire Hathaway Inc Class B, JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co, and Citigroup Inc at 12.83%, 11.47%, 7.57%, 4.56%, and 3.56%.

Morgan Stanley (3.32%), Goldman Sachs Group Inc (3.15%), and BlackRock Inc (3.02%) have a slightly smaller but still significant weight. Charles Schwab Corp and American Express Co are also represented in the XLF’s holdings at 2.66% and 2.62%.

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Risk Analysis

BNDXLF
Mean Return0.281.21
R-squared99.3473.26
Std. Deviation3.1418.86
Alpha-0.142.63
Beta1.041.15
Sharpe Ratio0.880.74
Treynor Ratio2.6411.25

The Vanguard Total Bond Market Index Fund ETF Shares (BND) has a Beta of 1.04 with a Alpha of -0.14 and a Standard Deviation of 3.14. Its Sharpe Ratio is 0.88 while BND’s Mean Return is 0.28. Furthermore, the fund has a Treynor Ratio of 2.64 and a R-squared of 99.34.

The Financial Select Sector SPDR Fund (XLF) has a R-squared of 73.26 with a Standard Deviation of 18.86 and a Mean Return of 1.21. Its Alpha is 2.63 while XLF’s Sharpe Ratio is 0.74. Furthermore, the fund has a Beta of 1.15 and a Treynor Ratio of 11.25.

BND’s Mean Return is 0.93 points lower than that of XLF and its R-squared is 26.08 points higher. With a Standard Deviation of 3.14, BND is slightly less volatile than XLF. The Alpha and Beta of BND are 2.77 points lower and 0.11 points lower than XLF’s Alpha and Beta.

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Performance

Annual Returns

BND vs. XLF - Annual Returns

YearBNDXLF
20207.71%-1.68%
20198.71%31.88%
2018-0.04%-13.09%
20173.62%22.03%
20162.57%22.55%
20150.39%-1.6%
20145.96%15.02%
2013-2.14%35.37%
20124.04%28.53%
20117.71%-17.16%
20106.51%11.97%

BND had its best year in 2019 with an annual return of 8.71%. BND’s worst year over the past decade yielded -2.14% and occurred in 2013. In most years the Vanguard Total Bond Market Index Fund ETF Shares provided moderate returns such as in 2017, 2012, and 2014 where annual returns amounted to 3.62%, 4.04%, and 5.96% respectively.

The year 2013 was the strongest year for XLF, returning 35.37% on an annual basis. The poorest year for XLF in the last ten years was 2011, with a yield of -17.16%. Most years the Financial Select Sector SPDR Fund has given investors modest returns, such as in 2010, 2014, and 2017, when gains were 11.97%, 15.02%, and 22.03% respectively.

Portfolio Growth

BND vs. XLF - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
BND$10,000$15,4564.09%
XLF$10,000$30,78212.17%

A $10,000 investment in BND would have resulted in a final balance of $15,456. This is a profit of $5,456 over 11 years and amounts to a compound annual growth rate (CAGR) of 4.09%.

With a $10,000 investment in XLF, the end total would have been $30,782. This equates to a $20,782 profit over 11 years and a compound annual growth rate (CAGR) of 12.17%.

BND’s CAGR is 8.07 percentage points lower than that of XLF and as a result, would have yielded $15,326 less on a $10,000 investment. Thus, BND performed worse than XLF by 8.07% annually.


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