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VNQ vs. XLI: What’s The Difference?

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

VNQ and XLI 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 lower returns than XLI over the past ten years.

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

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Summary

VNQXLI
NameVanguard Real Estate Index Fund ETF SharesIndustrial Select Sector SPDR Fund
CategoryReal EstateIndustrials
IssuerVanguardSPDR State Street Global Advisors
AUM77.34B19.33B
Avg. Return11.05%14.44%
Div. Yield2.34%1.25%
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 Industrial Select Sector SPDR Fund (XLI) is a Industrials fund that is issued by SPDR State Street Global Advisors. It currently has 19.33B total assets under management and has yielded an average annual return of 14.44% over the past 10 years. The fund has a dividend yield of 1.25% with an expense ratio of 0.12%.

VNQ’s dividend yield is 1.09% higher than that of XLI (2.34% vs. 1.25%). Also, VNQ yielded on average 3.39% less per year over the past decade (11.05% vs. 14.44%). VNQ and XLI have the same expense ratio: 0.12%.

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Fund Composition

Industry Exposure

VNQ vs. XLI - Industry Exposure

VNQXLI
Technology0.0%1.82%
Industrials0.0%97.49%
Energy0.0%0.0%
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%0.69%
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 Industrial Select Sector SPDR Fund (XLI) has the most exposure to the Industrials sector at 97.49%. This is followed by Technology and Consumer Cyclical at 1.82% and 0.69% respectively. Financial Services (0.0%), Real Estate (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

XLI’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Consumer Cyclical stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.69%.

VNQ is 100.00% more exposed to the Real Estate sector than XLI (100.0% vs 0.0%). VNQ’s exposure to Technology and Industrials stocks is 1.82% lower and 97.49% lower respectively (0.0% vs. 1.82% and 0.0% vs. 97.49%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 0.69% less of the fund’s holdings compared to XLI (0.00% vs. 0.69%).

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%.

XLI - Holdings

XLI HoldingsWeight
Honeywell International Inc4.9%
United Parcel Service Inc Class B4.84%
Union Pacific Corp4.7%
Boeing Co4.24%
Raytheon Technologies Corp4.16%
Caterpillar Inc3.84%
General Electric Co3.8%
3M Co3.7%
Deere & Co3.54%
Lockheed Martin Corp2.98%

XLI’s Top Holdings are Honeywell International Inc, United Parcel Service Inc Class B, Union Pacific Corp, Boeing Co, and Raytheon Technologies Corp at 4.9%, 4.84%, 4.7%, 4.24%, and 4.16%.

Caterpillar Inc (3.84%), General Electric Co (3.8%), and 3M Co (3.7%) have a slightly smaller but still significant weight. Deere & Co and Lockheed Martin Corp are also represented in the XLI’s holdings at 3.54% and 2.98%.

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Risk Analysis

VNQXLI
Mean Return0.891.14
R-squared44.478.97
Std. Deviation16.1317.13
Alpha2.472.38
Beta0.761.08
Sharpe Ratio0.620.76
Treynor Ratio11.911.34

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

The Industrial Select Sector SPDR Fund (XLI) has a Sharpe Ratio of 0.76 with a Beta of 1.08 and a Alpha of 2.38. Its Mean Return is 1.14 while XLI’s R-squared is 78.97. Furthermore, the fund has a Standard Deviation of 17.13 and a Treynor Ratio of 11.34.

VNQ’s Mean Return is 0.25 points lower than that of XLI and its R-squared is 34.57 points lower. With a Standard Deviation of 16.13, VNQ is slightly less volatile than XLI. The Alpha and Beta of VNQ are 0.09 points higher and 0.32 points lower than XLI’s Alpha and Beta.

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Performance

Annual Returns

VNQ vs. XLI - Annual Returns

YearVNQXLI
2020-4.72%11.0%
201928.91%29.11%
2018-5.95%-13.1%
20174.95%23.85%
20168.53%19.93%
20152.37%-4.27%
201430.29%10.44%
20132.42%40.44%
201217.67%14.86%
20118.62%-1.01%
201028.44%27.62%

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 XLI, returning 40.44% on an annual basis. The poorest year for XLI in the last ten years was 2018, with a yield of -13.1%. Most years the Industrial Select Sector SPDR Fund has given investors modest returns, such as in 2020, 2012, and 2016, when gains were 11.0%, 14.86%, and 19.93% respectively.

Portfolio Growth

VNQ vs. XLI - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$29,50611.05%
XLI$10,000$39,85314.44%

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 XLI, the end total would have been $39,853. This equates to a $29,853 profit over 11 years and a compound annual growth rate (CAGR) of 14.44%.

VNQ’s CAGR is 3.39 percentage points lower than that of XLI and as a result, would have yielded $10,347 less on a $10,000 investment. Thus, VNQ performed worse than XLI by 3.39% annually.


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