VCSH vs. XLY: What’s The Difference?

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

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

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

Summary

VCSH XLY
Name Vanguard Short-Term Corporate Bond Index Fund ETF Shares Consumer Discretionary Select Sector SPDR Fund
Category Short-Term Bond Consumer Cyclical
Issuer Vanguard SPDR State Street Global Advisors
AUM 47.88B 20.21B
Avg. Return 3.12% 18.86%
Div. Yield 1.89% 0.63%
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 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%.

VCSH’s dividend yield is 1.26% higher than that of XLY (1.89% vs. 0.63%). Also, VCSH yielded on average 15.74% less per year over the past decade (3.12% vs. 18.86%). The expense ratio of VCSH is 0.07 percentage points lower than XLY’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.

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%.

Risk Analysis

VCSH XLY
Mean Return 0.24 1.47
R-squared 37.53 80.84
Std. Deviation 2.34 15.97
Alpha 0.93 6.96
Beta 0.48 1.02
Sharpe Ratio 0.97 1.06
Treynor Ratio 4.75 16.69

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

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

VCSH’s Mean Return is 1.23 points lower than that of XLY and its R-squared is 43.31 points lower. With a Standard Deviation of 2.34, VCSH is slightly less volatile than XLY. The Alpha and Beta of VCSH are 6.03 points lower and 0.54 points lower than XLY’s Alpha and Beta.

Performance

Annual Returns

VCSH vs. XLY - Annual Returns

Year VCSH XLY
2020 5.08% 29.66%
2019 6.85% 28.43%
2018 0.91% 1.66%
2017 2.45% 22.77%
2016 2.63% 5.87%
2015 1.25% 9.93%
2014 1.96% 9.49%
2013 1.37% 42.74%
2012 5.74% 23.6%
2011 2.94% 5.98%
2010 5.51% 27.36%

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 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

VCSH vs. XLY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCSH $10,000 $13,569 3.12%
XLY $10,000 $49,518 18.86%

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 XLY, the end total would have been $49,518. This equates to a $39,518 profit over 10 years and a compound annual growth rate (CAGR) of 18.86%.

VCSH’s CAGR is 15.74 percentage points lower than that of XLY and as a result, would have yielded $35,949 less on a $10,000 investment. Thus, VCSH performed worse than XLY by 15.74% annually.


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