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QUAL vs. XLC: What’s The Difference?

The iShares MSCI USA Quality Factor ETF (QUAL) and the Communication Services Select Sector SPDR Fund (XLC) are both among the Top 100 ETFs. QUAL is a iShares Large Blend fund and XLC is a SPDR State Street Global Advisors Communications fund. So, what’s the difference between QUAL and XLC? And which fund is better?

The expense ratio of QUAL is 0.03 percentage points higher than XLC’s (0.15% vs. 0.12%). QUAL also has a higher exposure to the technology sector and a lower standard deviation. Overall, QUAL has provided lower returns than XLC over the past 2 years.

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

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Summary

QUALXLC
NameiShares MSCI USA Quality Factor ETFCommunication Services Select Sector SPDR Fund
CategoryLarge BlendCommunications
IssueriSharesSPDR State Street Global Advisors
AUM23.93B14.09B
Avg. Return13.42%29.04%
Div. Yield1.29%0.62%
Expense Ratio0.15%0.12%

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 Communication Services Select Sector SPDR Fund (XLC) is a Communications fund that is issued by SPDR State Street Global Advisors. It currently has 14.09B total assets under management and has yielded an average annual return of 29.04% over the past 10 years. The fund has a dividend yield of 0.62% with an expense ratio of 0.12%.

QUAL’s dividend yield is 0.67% higher than that of XLC (1.29% vs. 0.62%). Also, QUAL yielded on average 15.61% less per year over the past decade (13.42% vs. 29.04%). The expense ratio of QUAL is 0.03 percentage points higher than XLC’s (0.15% vs. 0.12%).

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Fund Composition

Industry Exposure

QUAL vs. XLC - Industry Exposure

QUALXLC
Technology22.52%0.0%
Industrials9.22%0.0%
Energy2.24%0.0%
Communication Services11.44%100.0%
Utilities2.41%0.0%
Healthcare13.22%0.0%
Consumer Defensive8.57%0.0%
Real Estate2.72%0.0%
Financial Services15.87%0.0%
Consumer Cyclical9.43%0.0%
Basic Materials2.35%0.0%

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 Communication Services Select Sector SPDR Fund (XLC) has the most exposure to the Communication Services sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Financial Services (0.0%), and Real Estate (0.0%) only make up 0.00% of the fund’s total assets.

XLC’s mid-section with moderate exposure is comprised of Consumer Defensive, Healthcare, Utilities, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

QUAL is 22.52% more exposed to the Technology sector than XLC (22.52% vs 0.0%). QUAL’s exposure to Financial Services and Healthcare stocks is 15.87% higher and 13.22% higher respectively (15.87% vs. 0.0% and 13.22% vs. 0.0%). In total, Basic Materials, Utilities, and Real Estate also make up 7.48% more of the fund’s holdings compared to XLC (7.48% vs. 0.00%).

Holdings

QUAL - Holdings

QUAL HoldingsWeight
Facebook Inc Class A4.77%
Nike Inc Class B4.05%
Microsoft Corp3.54%
Apple Inc3.52%
Johnson & Johnson2.99%
BlackRock Inc2.87%
Target Corp2.8%
Mastercard Inc Class A2.72%
NVIDIA Corp2.71%
Alphabet Inc Class A2.49%

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%.

XLC - Holdings

XLC HoldingsWeight
Facebook Inc A23.75%
Alphabet Inc A11.49%
Alphabet Inc Class C11.16%
Netflix Inc4.78%
Charter Communications Inc A4.65%
Comcast Corp Class A4.44%
T-Mobile US Inc4.41%
The Walt Disney Co4.39%
AT&T Inc4.35%
Verizon Communications Inc4.33%

XLC’s Top Holdings are Facebook Inc A, Alphabet Inc A, Alphabet Inc Class C, Netflix Inc, and Charter Communications Inc A at 23.75%, 11.49%, 11.16%, 4.78%, and 4.65%.

Comcast Corp Class A (4.44%), T-Mobile US Inc (4.41%), and The Walt Disney Co (4.39%) have a slightly smaller but still significant weight. AT&T Inc and Verizon Communications Inc are also represented in the XLC’s holdings at 4.35% and 4.33%.

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Risk Analysis

QUALXLC
Mean Return00
R-squared00
Std. Deviation00
Alpha00
Beta00
Sharpe Ratio00
Treynor Ratio00

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

The Communication Services Select Sector SPDR Fund (XLC) has a Mean Return of 0 with a Beta of 0 and a Standard Deviation of 0. Its Alpha is 0 while XLC’s R-squared is 0. Furthermore, the fund has a Treynor Ratio of 0 and a Sharpe Ratio of 0.

QUAL’s Mean Return is 0.00 points lower than that of XLC and its R-squared is 0.00 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than XLC. The Alpha and Beta of QUAL are 0.00 points lower and 0.00 points lower than XLC’s Alpha and Beta.

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Performance

Annual Returns

QUAL vs. XLC - Annual Returns

YearQUALXLC
202016.96%26.85%
201934.14%31.22%
2018-5.77%0.0%
201722.26%0.0%
20169.18%0.0%
20155.56%0.0%
201411.62%0.0%
20130.0%0.0%
20120.0%0.0%
20110.0%0.0%
20100.0%0.0%

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 2019 was the strongest year for XLC, returning 31.22% on an annual basis. The poorest year for XLC in the last ten years was 2018, with a yield of 0.0%. Most years the Communication Services Select Sector SPDR Fund has given investors modest returns, such as in 2014, 2013, and 2012, when gains were 0.0%, 0.0%, and 0.0% respectively.

Portfolio Growth

QUAL vs. XLC - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
QUAL$10,000$15,68913.42%
XLC$10,000$16,64529.04%

A $10,000 investment in QUAL would have resulted in a final balance of $15,689. This is a profit of $5,689 over 2 years and amounts to a compound annual growth rate (CAGR) of 13.42%.

With a $10,000 investment in XLC, the end total would have been $16,645. This equates to a $6,645 profit over 2 years and a compound annual growth rate (CAGR) of 29.04%.

QUAL’s CAGR is 15.61 percentage points lower than that of XLC and as a result, would have yielded $956 less on a $10,000 investment. Thus, QUAL performed worse than XLC by 15.61% annually.


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