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VNQ vs. XLV: What’s The Difference?

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

VNQ and XLV 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 XLV over the past ten years.

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

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Summary

VNQXLV
NameVanguard Real Estate Index Fund ETF SharesHealth Care Select Sector SPDR Fund
CategoryReal EstateHealth
IssuerVanguardSPDR State Street Global Advisors
AUM77.34B27.88B
Avg. Return11.05%15.02%
Div. Yield2.34%1.4%
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 Health Care Select Sector SPDR Fund (XLV) is a Health fund that is issued by SPDR State Street Global Advisors. It currently has 27.88B total assets under management and has yielded an average annual return of 15.02% over the past 10 years. The fund has a dividend yield of 1.4% with an expense ratio of 0.12%.

VNQ’s dividend yield is 0.94% higher than that of XLV (2.34% vs. 1.4%). Also, VNQ yielded on average 3.98% less per year over the past decade (11.05% vs. 15.02%). VNQ and XLV have the same expense ratio: 0.12%.

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Fund Composition

Industry Exposure

VNQ vs. XLV - Industry Exposure

VNQXLV
Technology0.0%0.0%
Industrials0.0%0.0%
Energy0.0%0.0%
Communication Services0.0%0.0%
Utilities0.0%0.0%
Healthcare0.0%100.0%
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 Health Care Select Sector SPDR Fund (XLV) has the most exposure to the Healthcare 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.

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

XLV - Holdings

XLV HoldingsWeight
Johnson & Johnson9.19%
UnitedHealth Group Inc8.01%
Pfizer Inc4.64%
Abbott Laboratories4.36%
AbbVie Inc4.21%
Thermo Fisher Scientific Inc4.2%
Merck & Co Inc4.17%
Eli Lilly and Co3.87%
Danaher Corp3.61%
Medtronic PLC3.54%

XLV’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and AbbVie Inc at 9.19%, 8.01%, 4.64%, 4.36%, and 4.21%.

Thermo Fisher Scientific Inc (4.2%), Merck & Co Inc (4.17%), and Eli Lilly and Co (3.87%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the XLV’s holdings at 3.61% and 3.54%.

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Risk Analysis

VNQXLV
Mean Return0.891.27
R-squared44.458.19
Std. Deviation16.1312.94
Alpha2.477.75
Beta0.760.7
Sharpe Ratio0.621.13
Treynor Ratio11.921.1

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

The Health Care Select Sector SPDR Fund (XLV) has a Beta of 0.7 with a Treynor Ratio of 21.1 and a Sharpe Ratio of 1.13. Its Mean Return is 1.27 while XLV’s Alpha is 7.75. Furthermore, the fund has a Standard Deviation of 12.94 and a R-squared of 58.19.

VNQ’s Mean Return is 0.38 points lower than that of XLV and its R-squared is 13.79 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than XLV. The Alpha and Beta of VNQ are 5.28 points lower and 0.06 points higher than XLV’s Alpha and Beta.

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Performance

Annual Returns

VNQ vs. XLV - Annual Returns

YearVNQXLV
2020-4.72%13.33%
201928.91%20.63%
2018-5.95%6.3%
20174.95%21.7%
20168.53%-2.83%
20152.37%6.82%
201430.29%25.17%
20132.42%41.24%
201217.67%17.56%
20118.62%12.44%
201028.44%2.91%

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 XLV, returning 41.24% on an annual basis. The poorest year for XLV in the last ten years was 2016, with a yield of -2.83%. Most years the Health Care Select Sector SPDR Fund has given investors modest returns, such as in 2011, 2020, and 2012, when gains were 12.44%, 13.33%, and 17.56% respectively.

Portfolio Growth

VNQ vs. XLV - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$29,50611.05%
XLV$10,000$44,14715.02%

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 XLV, the end total would have been $44,147. This equates to a $34,147 profit over 11 years and a compound annual growth rate (CAGR) of 15.02%.

VNQ’s CAGR is 3.98 percentage points lower than that of XLV and as a result, would have yielded $14,641 less on a $10,000 investment. Thus, VNQ performed worse than XLV by 3.98% annually.


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