VCSH vs. XLV: What’s The Difference?

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

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

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

Summary

VCSH XLV
Name Vanguard Short-Term Corporate Bond Index Fund ETF Shares Health Care Select Sector SPDR Fund
Category Short-Term Bond Health
Issuer Vanguard SPDR State Street Global Advisors
AUM 47.88B 27.88B
Avg. Return 3.12% 15.02%
Div. Yield 1.89% 1.4%
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 Health Care Select Sector SPDR Fund (XLV) is a Health fund that is issued by SPDR State Street Global Advisors. It currently has 27.88B total assets under management and has yielded an average annual return of 15.02% over the past 10 years. The fund has a dividend yield of 1.4% with an expense ratio of 0.12%.

VCSH’s dividend yield is 0.49% higher than that of XLV (1.89% vs. 1.4%). Also, VCSH yielded on average 11.91% less per year over the past decade (3.12% vs. 15.02%). The expense ratio of VCSH is 0.07 percentage points lower than XLV’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.

XLV - Holdings

XLV Holdings Weight
Johnson & Johnson 9.19%
UnitedHealth Group Inc 8.01%
Pfizer Inc 4.64%
Abbott Laboratories 4.36%
AbbVie Inc 4.21%
Thermo Fisher Scientific Inc 4.2%
Merck & Co Inc 4.17%
Eli Lilly and Co 3.87%
Danaher Corp 3.61%
Medtronic PLC 3.54%

XLV’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and AbbVie Inc at 9.19%, 8.01%, 4.64%, 4.36%, and 4.21%.

Thermo Fisher Scientific Inc (4.2%), Merck & Co Inc (4.17%), and Eli Lilly and Co (3.87%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the XLV’s holdings at 3.61% and 3.54%.

Risk Analysis

VCSH XLV
Mean Return 0.24 1.27
R-squared 37.53 58.19
Std. Deviation 2.34 12.94
Alpha 0.93 7.75
Beta 0.48 0.7
Sharpe Ratio 0.97 1.13
Treynor Ratio 4.75 21.1

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

The Health Care Select Sector SPDR Fund (XLV) has a Beta of 0.7 with a Sharpe Ratio of 1.13 and a Treynor Ratio of 21.1. Its Mean Return is 1.27 while XLV’s Alpha is 7.75. Furthermore, the fund has a R-squared of 58.19 and a Standard Deviation of 12.94.

VCSH’s Mean Return is 1.03 points lower than that of XLV and its R-squared is 20.66 points lower. With a Standard Deviation of 2.34, VCSH is slightly less volatile than XLV. The Alpha and Beta of VCSH are 6.82 points lower and 0.22 points lower than XLV’s Alpha and Beta.

Performance

Annual Returns

VCSH vs. XLV - Annual Returns

Year VCSH XLV
2020 5.08% 13.33%
2019 6.85% 20.63%
2018 0.91% 6.3%
2017 2.45% 21.7%
2016 2.63% -2.83%
2015 1.25% 6.82%
2014 1.96% 25.17%
2013 1.37% 41.24%
2012 5.74% 17.56%
2011 2.94% 12.44%
2010 5.51% 2.91%

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 XLV, returning 41.24% on an annual basis. The poorest year for XLV in the last ten years was 2016, with a yield of -2.83%. Most years the Health Care Select Sector SPDR Fund has given investors modest returns, such as in 2011, 2020, and 2012, when gains were 12.44%, 13.33%, and 17.56% respectively.

Portfolio Growth

VCSH vs. XLV - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCSH $10,000 $13,569 3.12%
XLV $10,000 $42,899 15.02%

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 XLV, the end total would have been $42,899. This equates to a $32,899 profit over 10 years and a compound annual growth rate (CAGR) of 15.02%.

VCSH’s CAGR is 11.91 percentage points lower than that of XLV and as a result, would have yielded $29,330 less on a $10,000 investment. Thus, VCSH performed worse than XLV by 11.91% annually.


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