QUAL vs. XLI: What’s The Difference?

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

The expense ratio of QUAL is 0.03 percentage points higher than XLI’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 XLI over the past 7 years.

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

Summary

QUAL XLI
Name iShares MSCI USA Quality Factor ETF Industrial Select Sector SPDR Fund
Category Large Blend Industrials
Issuer iShares SPDR State Street Global Advisors
AUM 23.93B 19.33B
Avg. Return 13.42% 14.44%
Div. Yield 1.29% 1.25%
Expense Ratio 0.15% 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 Industrial Select Sector SPDR Fund (XLI) is a Industrials fund that is issued by SPDR State Street Global Advisors. It currently has 19.33B total assets under management and has yielded an average annual return of 14.44% over the past 10 years. The fund has a dividend yield of 1.25% with an expense ratio of 0.12%.

QUAL’s dividend yield is 0.04% higher than that of XLI (1.29% vs. 1.25%). Also, QUAL yielded on average 1.02% less per year over the past decade (13.42% vs. 14.44%). The expense ratio of QUAL is 0.03 percentage points higher than XLI’s (0.15% vs. 0.12%).

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Fund Composition

Industry Exposure

QUAL vs. XLI - Industry Exposure

QUAL XLI
Technology 22.52% 1.82%
Industrials 9.22% 97.49%
Energy 2.24% 0.0%
Communication Services 11.44% 0.0%
Utilities 2.41% 0.0%
Healthcare 13.22% 0.0%
Consumer Defensive 8.57% 0.0%
Real Estate 2.72% 0.0%
Financial Services 15.87% 0.0%
Consumer Cyclical 9.43% 0.69%
Basic Materials 2.35% 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 Industrial Select Sector SPDR Fund (XLI) has the most exposure to the Industrials sector at 97.49%. This is followed by Technology and Consumer Cyclical at 1.82% and 0.69% respectively. Financial Services (0.0%), Real Estate (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

XLI’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Consumer Cyclical stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.69%.

QUAL is 20.70% more exposed to the Technology sector than XLI (22.52% vs 1.82%). 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 XLI (7.48% vs. 0.00%).

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%.

XLI - Holdings

XLI Holdings Weight
Honeywell International Inc 4.9%
United Parcel Service Inc Class B 4.84%
Union Pacific Corp 4.7%
Boeing Co 4.24%
Raytheon Technologies Corp 4.16%
Caterpillar Inc 3.84%
General Electric Co 3.8%
3M Co 3.7%
Deere & Co 3.54%
Lockheed Martin Corp 2.98%

XLI’s Top Holdings are Honeywell International Inc, United Parcel Service Inc Class B, Union Pacific Corp, Boeing Co, and Raytheon Technologies Corp at 4.9%, 4.84%, 4.7%, 4.24%, and 4.16%.

Caterpillar Inc (3.84%), General Electric Co (3.8%), and 3M Co (3.7%) have a slightly smaller but still significant weight. Deere & Co and Lockheed Martin Corp are also represented in the XLI’s holdings at 3.54% and 2.98%.

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Risk Analysis

QUAL XLI
Mean Return 0 1.14
R-squared 0 78.97
Std. Deviation 0 17.13
Alpha 0 2.38
Beta 0 1.08
Sharpe Ratio 0 0.76
Treynor Ratio 0 11.34

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

The Industrial Select Sector SPDR Fund (XLI) has a Alpha of 2.38 with a R-squared of 78.97 and a Mean Return of 1.14. Its Treynor Ratio is 11.34 while XLI’s Beta is 1.08. Furthermore, the fund has a Standard Deviation of 17.13 and a Sharpe Ratio of 0.76.

QUAL’s Mean Return is 1.14 points lower than that of XLI and its R-squared is 78.97 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than XLI. The Alpha and Beta of QUAL are 2.38 points lower and 1.08 points lower than XLI’s Alpha and Beta.

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Performance

Annual Returns

QUAL vs. XLI - Annual Returns

Year QUAL XLI
2020 16.96% 11.0%
2019 34.14% 29.11%
2018 -5.77% -13.1%
2017 22.26% 23.85%
2016 9.18% 19.93%
2015 5.56% -4.27%
2014 11.62% 10.44%
2013 0.0% 40.44%
2012 0.0% 14.86%
2011 0.0% -1.01%
2010 0.0% 27.62%

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 XLI, returning 40.44% on an annual basis. The poorest year for XLI in the last ten years was 2018, with a yield of -13.1%. Most years the Industrial Select Sector SPDR Fund has given investors modest returns, such as in 2020, 2012, and 2016, when gains were 11.0%, 14.86%, and 19.93% respectively.

Portfolio Growth

QUAL vs. XLI - Portfolio Growth

Fund Initial Balance Final Balance CAGR
QUAL $10,000 $23,251 13.42%
XLI $10,000 $19,556 14.44%

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 XLI, the end total would have been $19,556. This equates to a $9,556 profit over 7 years and a compound annual growth rate (CAGR) of 14.44%.

QUAL’s CAGR is 1.02 percentage points lower than that of XLI and as a result, would have yielded $3,695 more on a $10,000 investment. Thus, QUAL performed worse than XLI by 1.02% annually.


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