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VNQ vs. XLC: What’s The Difference?

The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the Communication Services Select Sector SPDR Fund (XLC) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and XLC is a SPDR State Street Global Advisors Communications fund. So, what’s the difference between VNQ and XLC? And which fund is better?

VNQ and XLC have the same expense ratio: 0.12%. VNQ also has a higher exposure to the real estate sector and a higher standard deviation. Overall, VNQ has provided lower returns than XLC over the past ten years.

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

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Summary

VNQXLC
NameVanguard Real Estate Index Fund ETF SharesCommunication Services Select Sector SPDR Fund
CategoryReal EstateCommunications
IssuerVanguardSPDR State Street Global Advisors
AUM77.34B14.09B
Avg. Return11.05%29.04%
Div. Yield2.34%0.62%
Expense Ratio0.12%0.12%

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 Communication Services Select Sector SPDR Fund (XLC) is a Communications fund that is issued by SPDR State Street Global Advisors. It currently has 14.09B total assets under management and has yielded an average annual return of 29.04% over the past 10 years. The fund has a dividend yield of 0.62% with an expense ratio of 0.12%.

VNQ’s dividend yield is 1.72% higher than that of XLC (2.34% vs. 0.62%). Also, VNQ yielded on average 17.99% less per year over the past decade (11.05% vs. 29.04%). VNQ and XLC have the same expense ratio: 0.12%.

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Fund Composition

Industry Exposure

VNQ vs. XLC - Industry Exposure

VNQXLC
Technology0.0%0.0%
Industrials0.0%0.0%
Energy0.0%0.0%
Communication Services0.0%100.0%
Utilities0.0%0.0%
Healthcare0.0%0.0%
Consumer Defensive0.0%0.0%
Real Estate100.0%0.0%
Financial Services0.0%0.0%
Consumer Cyclical0.0%0.0%
Basic Materials0.0%0.0%

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 Communication Services Select Sector SPDR Fund (XLC) has the most exposure to the Communication Services 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 Real Estate (0.0%) only make up 0.00% of the fund’s total assets.

XLC’s mid-section with moderate exposure is comprised of Consumer Defensive, Healthcare, Utilities, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

VNQ is 100.00% more exposed to the Real Estate sector than XLC (100.0% vs 0.0%). VNQ’s exposure to Technology and Industrials stocks is 0.00% lower and 0.00% lower respectively (0.0% vs. 0.0% and 0.0% vs. 0.0%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 0.00% less of the fund’s holdings compared to XLC (0.00% vs. 0.00%).

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%.

XLC - Holdings

XLC HoldingsWeight
Facebook Inc A23.75%
Alphabet Inc A11.49%
Alphabet Inc Class C11.16%
Netflix Inc4.78%
Charter Communications Inc A4.65%
Comcast Corp Class A4.44%
T-Mobile US Inc4.41%
The Walt Disney Co4.39%
AT&T Inc4.35%
Verizon Communications Inc4.33%

XLC’s Top Holdings are Facebook Inc A, Alphabet Inc A, Alphabet Inc Class C, Netflix Inc, and Charter Communications Inc A at 23.75%, 11.49%, 11.16%, 4.78%, and 4.65%.

Comcast Corp Class A (4.44%), T-Mobile US Inc (4.41%), and The Walt Disney Co (4.39%) have a slightly smaller but still significant weight. AT&T Inc and Verizon Communications Inc are also represented in the XLC’s holdings at 4.35% and 4.33%.

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Risk Analysis

VNQXLC
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 Alpha of 2.47 with a R-squared of 44.4 and a Beta of 0.76. Its Standard Deviation is 16.13 while VNQ’s Treynor Ratio is 11.9. Furthermore, the fund has a Mean Return of 0.89 and a Sharpe Ratio of 0.62.

The Communication Services Select Sector SPDR Fund (XLC) has a Mean Return of 0 with a Alpha of 0 and a Sharpe Ratio of 0. Its Treynor Ratio is 0 while XLC’s Beta is 0. Furthermore, the fund has a R-squared of 0 and a Standard Deviation of 0.

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

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Performance

Annual Returns

VNQ vs. XLC - Annual Returns

YearVNQXLC
2020-4.72%26.85%
201928.91%31.22%
2018-5.95%0.0%
20174.95%0.0%
20168.53%0.0%
20152.37%0.0%
201430.29%0.0%
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 XLC, returning 31.22% on an annual basis. The poorest year for XLC in the last ten years was 2018, with a yield of 0.0%. Most years the Communication Services Select Sector SPDR Fund has given investors modest returns, such as in 2014, 2013, and 2012, when gains were 0.0%, 0.0%, and 0.0% respectively.

Portfolio Growth

VNQ vs. XLC - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$12,28211.05%
XLC$10,000$16,64529.04%

A $10,000 investment in VNQ would have resulted in a final balance of $12,282. This is a profit of $2,282 over 2 years and amounts to a compound annual growth rate (CAGR) of 11.05%.

With a $10,000 investment in XLC, the end total would have been $16,645. This equates to a $6,645 profit over 2 years and a compound annual growth rate (CAGR) of 29.04%.

VNQ’s CAGR is 17.99 percentage points lower than that of XLC and as a result, would have yielded $4,363 less on a $10,000 investment. Thus, VNQ performed worse than XLC by 17.99% annually.


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