QUAL vs. XLY: What’s The Difference?

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

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

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

Summary

QUAL XLY
Name iShares MSCI USA Quality Factor ETF Consumer Discretionary Select Sector SPDR Fund
Category Large Blend Consumer Cyclical
Issuer iShares SPDR State Street Global Advisors
AUM 23.93B 20.21B
Avg. Return 13.42% 18.86%
Div. Yield 1.29% 0.63%
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 Consumer Discretionary Select Sector SPDR Fund (XLY) is a Consumer Cyclical fund that is issued by SPDR State Street Global Advisors. It currently has 20.21B total assets under management and has yielded an average annual return of 18.86% over the past 10 years. The fund has a dividend yield of 0.63% with an expense ratio of 0.12%.

QUAL’s dividend yield is 0.66% higher than that of XLY (1.29% vs. 0.63%). Also, QUAL yielded on average 5.44% less per year over the past decade (13.42% vs. 18.86%). The expense ratio of QUAL is 0.03 percentage points higher than XLY’s (0.15% vs. 0.12%).

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Fund Composition

Industry Exposure

QUAL vs. XLY - Industry Exposure

QUAL XLY
Technology 22.52% 0.57%
Industrials 9.22% 0.0%
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% 5.34%
Real Estate 2.72% 0.0%
Financial Services 15.87% 0.0%
Consumer Cyclical 9.43% 94.1%
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 Consumer Discretionary Select Sector SPDR Fund (XLY) has the most exposure to the Consumer Cyclical sector at 94.1%. This is followed by Consumer Defensive and Technology at 5.34% and 0.57% respectively. Financial Services (0.0%), Real Estate (0.0%), and Healthcare (0.0%) only make up 0.00% of the fund’s total assets.

XLY’s mid-section with moderate exposure is comprised of Utilities, Communication Services, Energy, Industrials, and Technology stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.57%.

QUAL is 21.95% more exposed to the Technology sector than XLY (22.52% vs 0.57%). 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 XLY (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%.

XLY - Holdings

XLY Holdings Weight
Amazon.com Inc 22.9%
Tesla Inc 13.5%
The Home Depot Inc 8.74%
McDonald’s Corp 4.5%
Nike Inc B 4.45%
Lowe’s Companies Inc 3.58%
Starbucks Corp 3.44%
Target Corp 3.12%
Booking Holdings Inc 2.35%
TJX Companies Inc 2.12%

XLY’s Top Holdings are Amazon.com Inc, Tesla Inc, The Home Depot Inc, McDonald’s Corp, and Nike Inc B at 22.9%, 13.5%, 8.74%, 4.5%, and 4.45%.

Lowe’s Companies Inc (3.58%), Starbucks Corp (3.44%), and Target Corp (3.12%) have a slightly smaller but still significant weight. Booking Holdings Inc and TJX Companies Inc are also represented in the XLY’s holdings at 2.35% and 2.12%.

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Risk Analysis

QUAL XLY
Mean Return 0 1.47
R-squared 0 80.84
Std. Deviation 0 15.97
Alpha 0 6.96
Beta 0 1.02
Sharpe Ratio 0 1.06
Treynor Ratio 0 16.69

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

The Consumer Discretionary Select Sector SPDR Fund (XLY) has a Alpha of 6.96 with a Mean Return of 1.47 and a Standard Deviation of 15.97. Its Treynor Ratio is 16.69 while XLY’s Sharpe Ratio is 1.06. Furthermore, the fund has a R-squared of 80.84 and a Beta of 1.02.

QUAL’s Mean Return is 1.47 points lower than that of XLY and its R-squared is 80.84 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than XLY. The Alpha and Beta of QUAL are 6.96 points lower and 1.02 points lower than XLY’s Alpha and Beta.

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Performance

Annual Returns

QUAL vs. XLY - Annual Returns

Year QUAL XLY
2020 16.96% 29.66%
2019 34.14% 28.43%
2018 -5.77% 1.66%
2017 22.26% 22.77%
2016 9.18% 5.87%
2015 5.56% 9.93%
2014 11.62% 9.49%
2013 0.0% 42.74%
2012 0.0% 23.6%
2011 0.0% 5.98%
2010 0.0% 27.36%

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 XLY, returning 42.74% on an annual basis. The poorest year for XLY in the last ten years was 2018, with a yield of 1.66%. Most years the Consumer Discretionary Select Sector SPDR Fund has given investors modest returns, such as in 2015, 2017, and 2012, when gains were 9.93%, 22.77%, and 23.6% respectively.

Portfolio Growth

QUAL vs. XLY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
QUAL $10,000 $23,251 13.42%
XLY $10,000 $26,483 18.86%

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 XLY, the end total would have been $26,483. This equates to a $16,483 profit over 7 years and a compound annual growth rate (CAGR) of 18.86%.

QUAL’s CAGR is 5.44 percentage points lower than that of XLY and as a result, would have yielded $3,232 less on a $10,000 investment. Thus, QUAL performed worse than XLY by 5.44% annually.


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