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VNQ vs. QUAL: What’s The Difference?

The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and QUAL is a iShares Large Blend fund. So, what’s the difference between VNQ and QUAL? And which fund is better?

The expense ratio of VNQ is 0.03 percentage points lower than QUAL’s (0.12% vs. 0.15%). VNQ also has a higher exposure to the real estate sector and a higher standard deviation. Overall, VNQ has provided lower returns than QUAL over the past ten years.

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

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Summary

VNQQUAL
NameVanguard Real Estate Index Fund ETF SharesiShares MSCI USA Quality Factor ETF
CategoryReal EstateLarge Blend
IssuerVanguardiShares
AUM77.34B23.93B
Avg. Return11.05%13.42%
Div. Yield2.34%1.29%
Expense Ratio0.12%0.15%

The Vanguard Real Estate Index Fund ETF Shares (VNQ) is a Real Estate fund that is issued by Vanguard. It currently has 77.34B total assets under management and has yielded an average annual return of 11.05% over the past 10 years. The fund has a dividend yield of 2.34% with an expense ratio of 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%.

VNQ’s dividend yield is 1.05% higher than that of QUAL (2.34% vs. 1.29%). Also, VNQ yielded on average 2.37% less per year over the past decade (11.05% vs. 13.42%). The expense ratio of VNQ is 0.03 percentage points lower than QUAL’s (0.12% vs. 0.15%).

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Fund Composition

Industry Exposure

VNQ vs. QUAL - Industry Exposure

VNQQUAL
Technology0.0%22.52%
Industrials0.0%9.22%
Energy0.0%2.24%
Communication Services0.0%11.44%
Utilities0.0%2.41%
Healthcare0.0%13.22%
Consumer Defensive0.0%8.57%
Real Estate100.0%2.72%
Financial Services0.0%15.87%
Consumer Cyclical0.0%9.43%
Basic Materials0.0%2.35%

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has the most exposure to the Real Estate sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Financial Services (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

VNQ’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 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%.

VNQ is 97.28% more exposed to the Real Estate sector than QUAL (100.0% vs 2.72%). VNQ’s exposure to Technology and Industrials stocks is 22.52% lower and 9.22% lower respectively (0.0% vs. 22.52% and 0.0% vs. 9.22%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 33.87% less of the fund’s holdings compared to QUAL (0.00% vs. 33.87%).

Holdings

VNQ - Holdings

VNQ HoldingsWeight
Vanguard Real Estate II Index11.62%
American Tower Corp7.24%
Prologis Inc5.33%
Crown Castle International Corp5.01%
Equinix Inc4.3%
Public Storage2.85%
Simon Property Group Inc2.52%
Digital Realty Trust Inc2.49%
SBA Communications Corp2.1%
Welltower Inc2.09%

VNQ’s Top Holdings are Vanguard Real Estate II Index, American Tower Corp, Prologis Inc, Crown Castle International Corp, and Equinix Inc at 11.62%, 7.24%, 5.33%, 5.01%, and 4.3%.

Public Storage (2.85%), Simon Property Group Inc (2.52%), and Digital Realty Trust Inc (2.49%) have a slightly smaller but still significant weight. SBA Communications Corp and Welltower Inc are also represented in the VNQ’s holdings at 2.1% and 2.09%.

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%.

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Risk Analysis

VNQQUAL
Mean Return0.890
R-squared44.40
Std. Deviation16.130
Alpha2.470
Beta0.760
Sharpe Ratio0.620
Treynor Ratio11.90

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Beta of 0.76 with a Mean Return of 0.89 and a Sharpe Ratio of 0.62. Its Standard Deviation is 16.13 while VNQ’s R-squared is 44.4. Furthermore, the fund has a Treynor Ratio of 11.9 and a Alpha of 2.47.

The iShares MSCI USA Quality Factor ETF (QUAL) has a Mean Return of 0 with a Treynor Ratio of 0 and a R-squared of 0. Its Beta is 0 while QUAL’s Standard Deviation is 0. Furthermore, the fund has a Sharpe Ratio of 0 and a Alpha of 0.

VNQ’s Mean Return is 0.89 points higher than that of QUAL and its R-squared is 44.40 points higher. With a Standard Deviation of 16.13, VNQ is slightly more volatile than QUAL. The Alpha and Beta of VNQ are 2.47 points higher and 0.76 points higher than QUAL’s Alpha and Beta.

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Performance

Annual Returns

VNQ vs. QUAL - Annual Returns

YearVNQQUAL
2020-4.72%16.96%
201928.91%34.14%
2018-5.95%-5.77%
20174.95%22.26%
20168.53%9.18%
20152.37%5.56%
201430.29%11.62%
20132.42%0.0%
201217.67%0.0%
20118.62%0.0%
201028.44%0.0%

VNQ had its best year in 2014 with an annual return of 30.29%. VNQ’s worst year over the past decade yielded -5.95% and occurred in 2018. In most years the Vanguard Real Estate Index Fund ETF Shares provided moderate returns such as in 2017, 2016, and 2011 where annual returns amounted to 4.95%, 8.53%, and 8.62% respectively.

The year 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

VNQ vs. QUAL - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$17,54911.05%
QUAL$10,000$23,25113.42%

A $10,000 investment in VNQ would have resulted in a final balance of $17,549. This is a profit of $7,549 over 7 years and amounts to a compound annual growth rate (CAGR) of 11.05%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

VNQ’s CAGR is 2.37 percentage points lower than that of QUAL and as a result, would have yielded $5,702 less on a $10,000 investment. Thus, VNQ performed worse than QUAL by 2.37% annually.


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