Skip to content

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.

TIP: Keep track of all your investments with Personal Capital. I use this amazing tool to aggregate all investments in one place and make sure I'm on track to financial freedom. Oh, and did I mention it's free? Try it out here (link to Personal Capital).

Summary

QUALXLY
NameiShares MSCI USA Quality Factor ETFConsumer Discretionary Select Sector SPDR Fund
CategoryLarge BlendConsumer Cyclical
IssueriSharesSPDR State Street Global Advisors
AUM23.93B20.21B
Avg. Return13.42%18.86%
Div. Yield1.29%0.63%
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 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%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

Fund Composition

Industry Exposure

QUAL vs. XLY - Industry Exposure

QUALXLY
Technology22.52%0.57%
Industrials9.22%0.0%
Energy2.24%0.0%
Communication Services11.44%0.0%
Utilities2.41%0.0%
Healthcare13.22%0.0%
Consumer Defensive8.57%5.34%
Real Estate2.72%0.0%
Financial Services15.87%0.0%
Consumer Cyclical9.43%94.1%
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 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 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%.

XLY - Holdings

XLY HoldingsWeight
Amazon.com Inc22.9%
Tesla Inc13.5%
The Home Depot Inc8.74%
McDonald’s Corp4.5%
Nike Inc B4.45%
Lowe’s Companies Inc3.58%
Starbucks Corp3.44%
Target Corp3.12%
Booking Holdings Inc2.35%
TJX Companies Inc2.12%

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%.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Risk Analysis

QUALXLY
Mean Return01.47
R-squared080.84
Std. Deviation015.97
Alpha06.96
Beta01.02
Sharpe Ratio01.06
Treynor Ratio016.69

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.

FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!

Performance

Annual Returns

QUAL vs. XLY - Annual Returns

YearQUALXLY
202016.96%29.66%
201934.14%28.43%
2018-5.77%1.66%
201722.26%22.77%
20169.18%5.87%
20155.56%9.93%
201411.62%9.49%
20130.0%42.74%
20120.0%23.6%
20110.0%5.98%
20100.0%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

FundInitial BalanceFinal BalanceCAGR
QUAL$10,000$23,25113.42%
XLY$10,000$26,48318.86%

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.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!

2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.

5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply

Your email address will not be published. Required fields are marked *