The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the SPDR S&P Dividend ETF (SDY) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and SDY is a SPDR State Street Global Advisors Large Value fund. So, what’s the difference between VNQ and SDY? And which fund is better?
The expense ratio of VNQ is 0.23 percentage points lower than SDY’s (0.12% vs. 0.35%). VNQ also has a higher exposure to the real estate sector and a higher standard deviation. Overall, VNQ has provided lower returns than SDY over the past ten years.
In this article, we’ll compare VNQ vs. SDY. We’ll look at fund composition and portfolio growth, as well as at their industry exposure and annual returns. Moreover, I’ll also discuss VNQ’s and SDY’s risk metrics, holdings, and performance and examine how these affect their overall returns.
|Name||Vanguard Real Estate Index Fund ETF Shares||SPDR S&P Dividend ETF|
|Category||Real Estate||Large Value|
|Issuer||Vanguard||SPDR State Street Global Advisors|
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 SPDR S&P Dividend ETF (SDY) is a Large Value fund that is issued by SPDR State Street Global Advisors. It currently has 19.67B total assets under management and has yielded an average annual return of 12.44% over the past 10 years. The fund has a dividend yield of 2.65% with an expense ratio of 0.35%.
VNQ’s dividend yield is 0.31% lower than that of SDY (2.34% vs. 2.65%). Also, VNQ yielded on average 1.39% less per year over the past decade (11.05% vs. 12.44%). The expense ratio of VNQ is 0.23 percentage points lower than SDY’s (0.12% vs. 0.35%).
FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).
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 SPDR S&P Dividend ETF (SDY) has the most exposure to the Financial Services sector at 16.32%. This is followed by Industrials and Consumer Defensive at 15.89% and 14.01% respectively. Communication Services (4.64%), Energy (5.95%), and Basic Materials (6.45%) only make up 17.04% of the fund’s total assets.
SDY’s mid-section with moderate exposure is comprised of Real Estate, Healthcare, Consumer Cyclical, Utilities, and Consumer Defensive stocks at 6.57%, 7.35%, 8.68%, 12.14%, and 14.01%.
VNQ is 93.43% more exposed to the Real Estate sector than SDY (100.0% vs 6.57%). VNQ’s exposure to Technology and Industrials stocks is 2.00% lower and 15.89% lower respectively (0.0% vs. 2.0% and 0.0% vs. 15.89%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 39.01% less of the fund’s holdings compared to SDY (0.00% vs. 39.01%).
|Vanguard Real Estate II Index||11.62%|
|American Tower Corp||7.24%|
|Crown Castle International Corp||5.01%|
|Simon Property Group Inc||2.52%|
|Digital Realty Trust Inc||2.49%|
|SBA Communications Corp||2.1%|
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%.
|Exxon Mobil Corp||2.81%|
|South Jersey Industries Inc||2.22%|
|International Business Machines Corp||2.0%|
|National Retail Properties Inc||1.86%|
|Federal Realty Investment Trust||1.77%|
|Realty Income Corp||1.7%|
|Old Republic International Corp||1.65%|
SDY’s Top Holdings are Exxon Mobil Corp, AT&T Inc, South Jersey Industries Inc, Chevron Corp, and International Business Machines Corp at 2.81%, 2.5%, 2.22%, 2.02%, and 2.0%.
AbbVie Inc (1.93%), National Retail Properties Inc (1.86%), and Federal Realty Investment Trust (1.77%) have a slightly smaller but still significant weight. Realty Income Corp and Old Republic International Corp are also represented in the SDY’s holdings at 1.7% and 1.65%.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Mean Return of 0.89 with a R-squared of 44.4 and a Sharpe Ratio of 0.62. Its Standard Deviation is 16.13 while VNQ’s Alpha is 2.47. Furthermore, the fund has a Beta of 0.76 and a Treynor Ratio of 11.9.
The SPDR S&P Dividend ETF (SDY) has a Alpha of -0.1 with a Standard Deviation of 12.9 and a R-squared of 83.62. Its Sharpe Ratio is 0.95 while SDY’s Treynor Ratio is 13.94. Furthermore, the fund has a Mean Return of 1.07 and a Beta of 0.87.
VNQ’s Mean Return is 0.18 points lower than that of SDY and its R-squared is 39.22 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than SDY. The Alpha and Beta of VNQ are 2.57 points higher and 0.11 points lower than SDY’s Alpha and Beta.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
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 2013 was the strongest year for SDY, returning 30.09% on an annual basis. The poorest year for SDY in the last ten years was 2018, with a yield of -2.73%. Most years the SPDR S&P Dividend ETF has given investors modest returns, such as in 2012, 2014, and 2017, when gains were 11.51%, 13.8%, and 15.84% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in VNQ would have resulted in a final balance of $29,506. This is a profit of $19,506 over 11 years and amounts to a compound annual growth rate (CAGR) of 11.05%.
With a $10,000 investment in SDY, the end total would have been $34,806. This equates to a $24,806 profit over 11 years and a compound annual growth rate (CAGR) of 12.44%.
VNQ’s CAGR is 1.39 percentage points lower than that of SDY and as a result, would have yielded $5,300 less on a $10,000 investment. Thus, VNQ performed worse than SDY by 1.39% annually.
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.