VCSH vs. XLI: What’s The Difference?

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) and the Industrial Select Sector SPDR Fund (XLI) are both among the Top 100 ETFs. VCSH is a Vanguard Short-Term Bond fund and XLI is a SPDR State Street Global Advisors Industrials fund. So, what’s the difference between VCSH and XLI? And which fund is better?

The expense ratio of VCSH is 0.07 percentage points lower than XLI’s (0.05% vs. 0.12%). VCSH is mostly comprised of BBB bonds while XLI has a high exposure to the industrials sector. Overall, VCSH has provided lower returns than XLI over the past ten years.

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

Summary

VCSH XLI
Name Vanguard Short-Term Corporate Bond Index Fund ETF Shares Industrial Select Sector SPDR Fund
Category Short-Term Bond Industrials
Issuer Vanguard SPDR State Street Global Advisors
AUM 47.88B 19.33B
Avg. Return 3.12% 14.44%
Div. Yield 1.89% 1.25%
Expense Ratio 0.05% 0.12%

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) is a Short-Term Bond fund that is issued by Vanguard. It currently has 47.88B total assets under management and has yielded an average annual return of 3.12% over the past 10 years. The fund has a dividend yield of 1.89% with an expense ratio of 0.05%.

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%.

VCSH’s dividend yield is 0.64% higher than that of XLI (1.89% vs. 1.25%). Also, VCSH yielded on average 11.32% less per year over the past decade (3.12% vs. 14.44%). The expense ratio of VCSH is 0.07 percentage points lower than XLI’s (0.05% vs. 0.12%).

Fund Composition

Holdings

VCSH - Holdings

VCSH Bond Sectors Weight
BBB 47.49%
A 43.06%
AA 8.45%
AAA 0.95%
Below B 0.03%
Others 0.02%
B 0.0%
BB 0.0%
US Government 0.0%

VCSH’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 47.49%, 43.06%, 8.45%, 0.95%, and 0.03%. The fund is less weighted towards Others (0.02%), B (0.0%), and BB (0.0%) rated bonds.

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%.

Risk Analysis

VCSH XLI
Mean Return 0.24 1.14
R-squared 37.53 78.97
Std. Deviation 2.34 17.13
Alpha 0.93 2.38
Beta 0.48 1.08
Sharpe Ratio 0.97 0.76
Treynor Ratio 4.75 11.34

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) has a Sharpe Ratio of 0.97 with a Alpha of 0.93 and a Standard Deviation of 2.34. Its R-squared is 37.53 while VCSH’s Beta is 0.48. Furthermore, the fund has a Treynor Ratio of 4.75 and a Mean Return of 0.24.

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

VCSH’s Mean Return is 0.90 points lower than that of XLI and its R-squared is 41.44 points lower. With a Standard Deviation of 2.34, VCSH is slightly less volatile than XLI. The Alpha and Beta of VCSH are 1.45 points lower and 0.60 points lower than XLI’s Alpha and Beta.

Performance

Annual Returns

VCSH vs. XLI - Annual Returns

Year VCSH XLI
2020 5.08% 11.0%
2019 6.85% 29.11%
2018 0.91% -13.1%
2017 2.45% 23.85%
2016 2.63% 19.93%
2015 1.25% -4.27%
2014 1.96% 10.44%
2013 1.37% 40.44%
2012 5.74% 14.86%
2011 2.94% -1.01%
2010 5.51% 27.62%

VCSH had its best year in 2019 with an annual return of 6.85%. VCSH’s worst year over the past decade yielded 0.91% and occurred in 2018. In most years the Vanguard Short-Term Corporate Bond Index Fund ETF Shares provided moderate returns such as in 2017, 2016, and 2011 where annual returns amounted to 2.45%, 2.63%, and 2.94% 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

VCSH vs. XLI - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCSH $10,000 $13,569 3.12%
XLI $10,000 $31,228 14.44%

A $10,000 investment in VCSH would have resulted in a final balance of $13,569. This is a profit of $3,569 over 10 years and amounts to a compound annual growth rate (CAGR) of 3.12%.

With a $10,000 investment in XLI, the end total would have been $31,228. This equates to a $21,228 profit over 10 years and a compound annual growth rate (CAGR) of 14.44%.

VCSH’s CAGR is 11.32 percentage points lower than that of XLI and as a result, would have yielded $17,659 less on a $10,000 investment. Thus, VCSH performed worse than XLI by 11.32% annually.


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