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.
Summary
| VNQ | XLE | |
| Name | Vanguard Real Estate Index Fund ETF Shares | Energy Select Sector SPDR Fund |
| Category | Real Estate | Equity Energy |
| Issuer | Vanguard | SPDR State Street Global Advisors |
| AUM | 77.34B | 25.55B |
| Avg. Return | 11.05% | 1.28% |
| Div. Yield | 2.34% | 3.92% |
| Expense Ratio | 0.12% | 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%.
Fund Composition
Industry Exposure
| VNQ | XLE | |
| Technology | 0.0% | 0.0% |
| Industrials | 0.0% | 0.0% |
| Energy | 0.0% | 100.0% |
| Communication Services | 0.0% | 0.0% |
| Utilities | 0.0% | 0.0% |
| Healthcare | 0.0% | 0.0% |
| Consumer Defensive | 0.0% | 0.0% |
| Real Estate | 100.0% | 0.0% |
| Financial Services | 0.0% | 0.0% |
| Consumer Cyclical | 0.0% | 0.0% |
| Basic Materials | 0.0% | 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 | Weight |
| Vanguard Real Estate II Index | 11.62% |
| American Tower Corp | 7.24% |
| Prologis Inc | 5.33% |
| Crown Castle International Corp | 5.01% |
| Equinix Inc | 4.3% |
| Public Storage | 2.85% |
| Simon Property Group Inc | 2.52% |
| Digital Realty Trust Inc | 2.49% |
| SBA Communications Corp | 2.1% |
| Welltower Inc | 2.09% |
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 | Weight |
| Exxon Mobil Corp | 23.7% |
| Chevron Corp | 20.03% |
| ConocoPhillips | 4.64% |
| EOG Resources Inc | 4.46% |
| Schlumberger Ltd | 4.43% |
| Marathon Petroleum Corp | 4.17% |
| Pioneer Natural Resources Co | 4.08% |
| Phillips 66 | 4.07% |
| Kinder Morgan Inc Class P | 3.85% |
| Williams Companies Inc | 3.5% |
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%.
Risk Analysis
| VNQ | XLE | |
| Mean Return | 0.89 | 0.32 |
| R-squared | 44.4 | 61.84 |
| Std. Deviation | 16.13 | 27.52 |
| Alpha | 2.47 | -11.98 |
| Beta | 0.76 | 1.54 |
| Sharpe Ratio | 0.62 | 0.12 |
| Treynor Ratio | 11.9 | -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.
Performance
Annual Returns
| Year | VNQ | XLE |
| 2020 | -4.72% | -32.56% |
| 2019 | 28.91% | 11.87% |
| 2018 | -5.95% | -18.1% |
| 2017 | 4.95% | -1.01% |
| 2016 | 8.53% | 27.95% |
| 2015 | 2.37% | -21.47% |
| 2014 | 30.29% | -8.61% |
| 2013 | 2.42% | 26.16% |
| 2012 | 17.67% | 5.17% |
| 2011 | 8.62% | 2.98% |
| 2010 | 28.44% | 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
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $29,506 | 11.05% |
| XLE | $10,000 | $9,339 | 1.28% |
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.
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