QUAL vs. VHT: What’s The Difference?

The iShares MSCI USA Quality Factor ETF (QUAL) and the Vanguard Health Care Index Fund ETF Shares (VHT) are both among the Top 100 ETFs. QUAL is a iShares Large Blend fund and VHT is a Vanguard Health fund. So, what’s the difference between QUAL and VHT? And which fund is better?

The expense ratio of QUAL is 0.05 percentage points higher than VHT’s (0.15% vs. 0.1%). QUAL also has a higher exposure to the technology sector and a lower standard deviation. Overall, QUAL has provided lower returns than VHT over the past 7 years.

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

Summary

QUAL VHT
Name iShares MSCI USA Quality Factor ETF Vanguard Health Care Index Fund ETF Shares
Category Large Blend Health
Issuer iShares Vanguard
AUM 23.93B 17.94B
Avg. Return 13.42% 16.04%
Div. Yield 1.29% 1.15%
Expense Ratio 0.15% 0.1%

The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

The Vanguard Health Care Index Fund ETF Shares (VHT) is a Health fund that is issued by Vanguard. It currently has 17.94B total assets under management and has yielded an average annual return of 16.04% over the past 10 years. The fund has a dividend yield of 1.15% with an expense ratio of 0.1%.

QUAL’s dividend yield is 0.14% higher than that of VHT (1.29% vs. 1.15%). Also, QUAL yielded on average 2.62% less per year over the past decade (13.42% vs. 16.04%). The expense ratio of QUAL is 0.05 percentage points higher than VHT’s (0.15% vs. 0.1%).

Fund Composition

Industry Exposure

QUAL vs. VHT - Industry Exposure

QUAL VHT
Technology 22.52% 0.05%
Industrials 9.22% 0.05%
Energy 2.24% 0.0%
Communication Services 11.44% 0.0%
Utilities 2.41% 0.0%
Healthcare 13.22% 99.57%
Consumer Defensive 8.57% 0.0%
Real Estate 2.72% 0.0%
Financial Services 15.87% 0.02%
Consumer Cyclical 9.43% 0.0%
Basic Materials 2.35% 0.31%

The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

The Vanguard Health Care Index Fund ETF Shares (VHT) has the most exposure to the Healthcare sector at 99.57%. This is followed by Basic Materials and Technology at 0.31% and 0.05% respectively. Real Estate (0.0%), Consumer Defensive (0.0%), and Utilities (0.0%) only make up 0.00% of the fund’s total assets.

VHT’s mid-section with moderate exposure is comprised of Communication Services, Energy, Financial Services, Industrials, and Technology stocks at 0.0%, 0.0%, 0.02%, 0.05%, and 0.05%.

QUAL is 22.47% more exposed to the Technology sector than VHT (22.52% vs 0.05%). QUAL’s exposure to Financial Services and Healthcare stocks is 15.85% higher and 86.35% lower respectively (15.87% vs. 0.02% and 13.22% vs. 99.57%). In total, Basic Materials, Utilities, and Real Estate also make up 7.17% more of the fund’s holdings compared to VHT (7.48% vs. 0.31%).

Holdings

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

VHT - Holdings

VHT Holdings Weight
Johnson & Johnson 7.34%
UnitedHealth Group Inc 6.44%
Pfizer Inc 3.7%
Abbott Laboratories 3.48%
Thermo Fisher Scientific Inc 3.37%
AbbVie Inc 3.37%
Merck & Co Inc 3.33%
Eli Lilly and Co 3.17%
Danaher Corp 2.91%
Medtronic PLC 2.83%

VHT’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and Thermo Fisher Scientific Inc at 7.34%, 6.44%, 3.7%, 3.48%, and 3.37%.

AbbVie Inc (3.37%), Merck & Co Inc (3.33%), and Eli Lilly and Co (3.17%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the VHT’s holdings at 2.91% and 2.83%.

Risk Analysis

QUAL VHT
Mean Return 0 1.33
R-squared 0 59.86
Std. Deviation 0 13.58
Alpha 0 7.99
Beta 0 0.75
Sharpe Ratio 0 1.13
Treynor Ratio 0 20.74

The iShares MSCI USA Quality Factor ETF (QUAL) has a Alpha of 0 with a Beta of 0 and a Sharpe Ratio of 0. Its Standard Deviation is 0 while QUAL’s Treynor Ratio is 0. Furthermore, the fund has a R-squared of 0 and a Mean Return of 0.

The Vanguard Health Care Index Fund ETF Shares (VHT) has a Standard Deviation of 13.58 with a R-squared of 59.86 and a Alpha of 7.99. Its Treynor Ratio is 20.74 while VHT’s Mean Return is 1.33. Furthermore, the fund has a Sharpe Ratio of 1.13 and a Beta of 0.75.

QUAL’s Mean Return is 1.33 points lower than that of VHT and its R-squared is 59.86 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than VHT. The Alpha and Beta of QUAL are 7.99 points lower and 0.75 points lower than VHT’s Alpha and Beta.

Performance

Annual Returns

QUAL vs. VHT - Annual Returns

Year QUAL VHT
2020 16.96% 18.21%
2019 34.14% 21.97%
2018 -5.77% 5.55%
2017 22.26% 23.34%
2016 9.18% -3.33%
2015 5.56% 7.22%
2014 11.62% 25.38%
2013 0.0% 42.67%
2012 0.0% 19.1%
2011 0.0% 10.57%
2010 0.0% 5.75%

QUAL had its best year in 2019 with an annual return of 34.14%. QUAL’s worst year over the past decade yielded -5.77% and occurred in 2018. In most years the iShares MSCI USA Quality Factor ETF provided moderate returns such as in 2010, 2015, and 2016 where annual returns amounted to 0.0%, 5.56%, and 9.18% respectively.

The year 2013 was the strongest year for VHT, returning 42.67% on an annual basis. The poorest year for VHT in the last ten years was 2016, with a yield of -3.33%. Most years the Vanguard Health Care Index Fund ETF Shares has given investors modest returns, such as in 2011, 2020, and 2012, when gains were 10.57%, 18.21%, and 19.1% respectively.

Portfolio Growth

QUAL vs. VHT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
QUAL $10,000 $23,251 13.42%
VHT $10,000 $24,392 16.04%

A $10,000 investment in QUAL would have resulted in a final balance of $23,251. This is a profit of $13,251 over 7 years and amounts to a compound annual growth rate (CAGR) of 13.42%.

With a $10,000 investment in VHT, the end total would have been $24,392. This equates to a $14,392 profit over 7 years and a compound annual growth rate (CAGR) of 16.04%.

QUAL’s CAGR is 2.62 percentage points lower than that of VHT and as a result, would have yielded $1,141 less on a $10,000 investment. Thus, QUAL performed worse than VHT by 2.62% annually.


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