Skip to content

VNQ vs. XLE: What’s The Difference?

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

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

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

TIP: Keep track of all your investments with Personal Capital. I use this amazing tool to aggregate all investments in one place and make sure I'm on track to financial freedom. Oh, and did I mention it's free? Try it out here (link to Personal Capital).

Summary

VNQXLE
NameVanguard Real Estate Index Fund ETF SharesEnergy Select Sector SPDR Fund
CategoryReal EstateEquity Energy
IssuerVanguardSPDR State Street Global Advisors
AUM77.34B25.55B
Avg. Return11.05%1.28%
Div. Yield2.34%3.92%
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 Energy Select Sector SPDR Fund (XLE) is a Equity Energy fund that is issued by SPDR State Street Global Advisors. It currently has 25.55B total assets under management and has yielded an average annual return of 1.28% over the past 10 years. The fund has a dividend yield of 3.92% with an expense ratio of 0.12%.

VNQ’s dividend yield is 1.58% lower than that of XLE (2.34% vs. 3.92%). Also, VNQ yielded on average 9.77% more per year over the past decade (11.05% vs. 1.28%). VNQ and XLE have the same expense ratio: 0.12%.

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).

Fund Composition

Industry Exposure

VNQ vs. XLE - Industry Exposure

VNQXLE
Technology0.0%0.0%
Industrials0.0%0.0%
Energy0.0%100.0%
Communication Services0.0%0.0%
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 Energy Select Sector SPDR Fund (XLE) has the most exposure to the Energy 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.

XLE’s mid-section with moderate exposure is comprised of Consumer Defensive, Healthcare, Utilities, Communication Services, 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 XLE (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 XLE (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%.

XLE - Holdings

XLE HoldingsWeight
Exxon Mobil Corp23.7%
Chevron Corp20.03%
ConocoPhillips4.64%
EOG Resources Inc4.46%
Schlumberger Ltd4.43%
Marathon Petroleum Corp4.17%
Pioneer Natural Resources Co4.08%
Phillips 664.07%
Kinder Morgan Inc Class P3.85%
Williams Companies Inc3.5%

XLE’s Top Holdings are Exxon Mobil Corp, Chevron Corp, ConocoPhillips, EOG Resources Inc, and Schlumberger Ltd at 23.7%, 20.03%, 4.64%, 4.46%, and 4.43%.

Marathon Petroleum Corp (4.17%), Pioneer Natural Resources Co (4.08%), and Phillips 66 (4.07%) have a slightly smaller but still significant weight. Kinder Morgan Inc Class P and Williams Companies Inc are also represented in the XLE’s holdings at 3.85% and 3.5%.

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).

Risk Analysis

VNQXLE
Mean Return0.890.32
R-squared44.461.84
Std. Deviation16.1327.52
Alpha2.47-11.98
Beta0.761.54
Sharpe Ratio0.620.12
Treynor Ratio11.9-0.4

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

The Energy Select Sector SPDR Fund (XLE) has a Mean Return of 0.32 with a Beta of 1.54 and a Sharpe Ratio of 0.12. Its R-squared is 61.84 while XLE’s Standard Deviation is 27.52. Furthermore, the fund has a Alpha of -11.98 and a Treynor Ratio of -0.4.

VNQ’s Mean Return is 0.57 points higher than that of XLE and its R-squared is 17.44 points lower. With a Standard Deviation of 16.13, VNQ is slightly less volatile than XLE. The Alpha and Beta of VNQ are 14.45 points higher and 0.78 points lower than XLE’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!

Performance

Annual Returns

VNQ vs. XLE - Annual Returns

YearVNQXLE
2020-4.72%-32.56%
201928.91%11.87%
2018-5.95%-18.1%
20174.95%-1.01%
20168.53%27.95%
20152.37%-21.47%
201430.29%-8.61%
20132.42%26.16%
201217.67%5.17%
20118.62%2.98%
201028.44%21.7%

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 2016 was the strongest year for XLE, returning 27.95% on an annual basis. The poorest year for XLE in the last ten years was 2020, with a yield of -32.56%. Most years the Energy Select Sector SPDR Fund has given investors modest returns, such as in 2017, 2011, and 2012, when gains were -1.01%, 2.98%, and 5.17% respectively.

Portfolio Growth

VNQ vs. XLE - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$29,50611.05%
XLE$10,000$9,3391.28%

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 XLE, the end total would have been $9,339. This equates to a $-661 profit over 11 years and a compound annual growth rate (CAGR) of 1.28%.

VNQ’s CAGR is 9.77 percentage points higher than that of XLE and as a result, would have yielded $20,167 more on a $10,000 investment. Thus, VNQ outperformed XLE by 9.77% annually.


Current recommendations:

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.

Leave a Reply

Your email address will not be published.