VEU vs. XLY: What’s The Difference?

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) and the Consumer Discretionary Select Sector SPDR Fund (XLY) are both among the Top 100 ETFs. VEU is a Vanguard Foreign Large Blend fund and XLY is a SPDR State Street Global Advisors Consumer Cyclical fund. So, what’s the difference between VEU and XLY? And which fund is better?

The expense ratio of VEU is 0.04 percentage points lower than XLY’s (0.08% vs. 0.12%). VEU also has a higher exposure to the financial services sector and a lower standard deviation. Overall, VEU has provided lower returns than XLY over the past ten years.

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

Summary

VEU XLY
Name Vanguard FTSE All-World ex-US Index Fund ETF Shares Consumer Discretionary Select Sector SPDR Fund
Category Foreign Large Blend Consumer Cyclical
Issuer Vanguard SPDR State Street Global Advisors
AUM 53.64B 20.21B
Avg. Return 6.64% 18.86%
Div. Yield 2.31% 0.63%
Expense Ratio 0.08% 0.12%

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 53.64B total assets under management and has yielded an average annual return of 6.64% over the past 10 years. The fund has a dividend yield of 2.31% with an expense ratio of 0.08%.

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%.

VEU’s dividend yield is 1.68% higher than that of XLY (2.31% vs. 0.63%). Also, VEU yielded on average 12.22% less per year over the past decade (6.64% vs. 18.86%). The expense ratio of VEU is 0.04 percentage points lower than XLY’s (0.08% vs. 0.12%).

Fund Composition

Industry Exposure

VEU vs. XLY - Industry Exposure

VEU XLY
Technology 12.94% 0.57%
Industrials 12.19% 0.0%
Energy 4.69% 0.0%
Communication Services 7.44% 0.0%
Utilities 2.89% 0.0%
Healthcare 9.34% 0.0%
Consumer Defensive 8.28% 5.34%
Real Estate 3.04% 0.0%
Financial Services 18.46% 0.0%
Consumer Cyclical 12.57% 94.1%
Basic Materials 8.17% 0.0%

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has the most exposure to the Financial Services sector at 18.46%. This is followed by Technology and Consumer Cyclical at 12.94% and 12.57% respectively. Real Estate (3.04%), Energy (4.69%), and Communication Services (7.44%) only make up 15.17% of the fund’s total assets.

VEU’s mid-section with moderate exposure is comprised of Basic Materials, Consumer Defensive, Healthcare, Industrials, and Consumer Cyclical stocks at 8.17%, 8.28%, 9.34%, 12.19%, and 12.57%.

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%.

VEU is 18.46% more exposed to the Financial Services sector than XLY (18.46% vs 0.0%). VEU’s exposure to Technology and Consumer Cyclical stocks is 12.37% higher and 81.53% lower respectively (12.94% vs. 0.57% and 12.57% vs. 94.1%). In total, Real Estate, Energy, and Communication Services also make up 15.17% more of the fund’s holdings compared to XLY (15.17% vs. 0.00%).

Holdings

VEU - Holdings

VEU Holdings Weight
Tencent Holdings Ltd 1.57%
Alibaba Group Holding Ltd Ordinary Shares 1.4%
Nestle SA 1.22%
Taiwan Semiconductor Manufacturing Co Ltd 0.98%
ASML Holding NV 0.95%
Taiwan Semiconductor Manufacturing Co Ltd ADR 0.91%
Roche Holding AG 0.91%
Toyota Motor Corp 0.75%
LVMH Moet Hennessy Louis Vuitton SE 0.68%
Novartis AG 0.67%

VEU’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Nestle SA, Taiwan Semiconductor Manufacturing Co Ltd, and ASML Holding NV at 1.57%, 1.4%, 1.22%, 0.98%, and 0.95%.

Taiwan Semiconductor Manufacturing Co Ltd ADR (0.91%), Roche Holding AG (0.91%), and Toyota Motor Corp (0.75%) have a slightly smaller but still significant weight. LVMH Moet Hennessy Louis Vuitton SE and Novartis AG are also represented in the VEU’s holdings at 0.68% and 0.67%.

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

VEU XLY
Mean Return 0.56 1.47
R-squared 98.44 80.84
Std. Deviation 15.08 15.97
Alpha 0.28 6.96
Beta 0.99 1.02
Sharpe Ratio 0.4 1.06
Treynor Ratio 5.12 16.69

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has a Alpha of 0.28 with a Sharpe Ratio of 0.4 and a Standard Deviation of 15.08. Its R-squared is 98.44 while VEU’s Mean Return is 0.56. Furthermore, the fund has a Treynor Ratio of 5.12 and a Beta of 0.99.

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

VEU’s Mean Return is 0.91 points lower than that of XLY and its R-squared is 17.60 points higher. With a Standard Deviation of 15.08, VEU is slightly less volatile than XLY. The Alpha and Beta of VEU are 6.68 points lower and 0.03 points lower than XLY’s Alpha and Beta.

Performance

Annual Returns

VEU vs. XLY - Annual Returns

Year VEU XLY
2020 11.39% 29.66%
2019 21.63% 28.43%
2018 -13.97% 1.66%
2017 27.27% 22.77%
2016 4.77% 5.87%
2015 -4.67% 9.93%
2014 -4.05% 9.49%
2013 14.5% 42.74%
2012 18.55% 23.6%
2011 -14.25% 5.98%
2010 11.85% 27.36%

VEU had its best year in 2017 with an annual return of 27.27%. VEU’s worst year over the past decade yielded -14.25% and occurred in 2011. In most years the Vanguard FTSE All-World ex-US Index Fund ETF Shares provided moderate returns such as in 2016, 2020, and 2010 where annual returns amounted to 4.77%, 11.39%, and 11.85% 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

VEU vs. XLY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VEU $10,000 $18,507 6.64%
XLY $10,000 $63,066 18.86%

A $10,000 investment in VEU would have resulted in a final balance of $18,507. This is a profit of $8,507 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.64%.

With a $10,000 investment in XLY, the end total would have been $63,066. This equates to a $53,066 profit over 11 years and a compound annual growth rate (CAGR) of 18.86%.

VEU’s CAGR is 12.22 percentage points lower than that of XLY and as a result, would have yielded $44,559 less on a $10,000 investment. Thus, VEU performed worse than XLY by 12.22% annually.


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