The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the Consumer Discretionary Select Sector SPDR Fund (XLY) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and XLY is a SPDR State Street Global Advisors Consumer Cyclical fund. So, what’s the difference between VNQ and XLY? And which fund is better?
VNQ and XLY 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 XLY over the past ten years.
In this article, we’ll compare VNQ vs. XLY. We’ll look at holdings and risk metrics, as well as at their performance and portfolio growth. Moreover, I’ll also discuss VNQ’s and XLY’s annual returns, industry exposure, and fund composition and examine how these affect their overall returns.
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Summary
| VNQ | XLY | |
| Name | Vanguard Real Estate Index Fund ETF Shares | Consumer Discretionary Select Sector SPDR Fund |
| Category | Real Estate | Consumer Cyclical |
| Issuer | Vanguard | SPDR State Street Global Advisors |
| AUM | 77.34B | 20.21B |
| Avg. Return | 11.05% | 18.86% |
| Div. Yield | 2.34% | 0.63% |
| 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 Consumer Discretionary Select Sector SPDR Fund (XLY) is a Consumer Cyclical fund that is issued by SPDR State Street Global Advisors. It currently has 20.21B total assets under management and has yielded an average annual return of 18.86% over the past 10 years. The fund has a dividend yield of 0.63% with an expense ratio of 0.12%.
VNQ’s dividend yield is 1.71% higher than that of XLY (2.34% vs. 0.63%). Also, VNQ yielded on average 7.81% less per year over the past decade (11.05% vs. 18.86%). VNQ and XLY have the same expense ratio: 0.12%.
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Fund Composition
Industry Exposure
| VNQ | XLY | |
| Technology | 0.0% | 0.57% |
| Industrials | 0.0% | 0.0% |
| Energy | 0.0% | 0.0% |
| Communication Services | 0.0% | 0.0% |
| Utilities | 0.0% | 0.0% |
| Healthcare | 0.0% | 0.0% |
| Consumer Defensive | 0.0% | 5.34% |
| Real Estate | 100.0% | 0.0% |
| Financial Services | 0.0% | 0.0% |
| Consumer Cyclical | 0.0% | 94.1% |
| 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 Consumer Discretionary Select Sector SPDR Fund (XLY) has the most exposure to the Consumer Cyclical sector at 94.1%. This is followed by Consumer Defensive and Technology at 5.34% and 0.57% respectively. Financial Services (0.0%), Real Estate (0.0%), and Healthcare (0.0%) only make up 0.00% of the fund’s total assets.
XLY’s mid-section with moderate exposure is comprised of Utilities, Communication Services, Energy, Industrials, and Technology stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.57%.
VNQ is 100.00% more exposed to the Real Estate sector than XLY (100.0% vs 0.0%). VNQ’s exposure to Technology and Industrials stocks is 0.57% lower and 0.00% lower respectively (0.0% vs. 0.57% and 0.0% vs. 0.0%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 99.44% less of the fund’s holdings compared to XLY (0.00% vs. 99.44%).
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%.
| XLY Holdings | Weight |
| Amazon.com Inc | 22.9% |
| Tesla Inc | 13.5% |
| The Home Depot Inc | 8.74% |
| McDonald’s Corp | 4.5% |
| Nike Inc B | 4.45% |
| Lowe’s Companies Inc | 3.58% |
| Starbucks Corp | 3.44% |
| Target Corp | 3.12% |
| Booking Holdings Inc | 2.35% |
| TJX Companies Inc | 2.12% |
XLY’s Top Holdings are Amazon.com Inc, Tesla Inc, The Home Depot Inc, McDonald’s Corp, and Nike Inc B at 22.9%, 13.5%, 8.74%, 4.5%, and 4.45%.
Lowe’s Companies Inc (3.58%), Starbucks Corp (3.44%), and Target Corp (3.12%) have a slightly smaller but still significant weight. Booking Holdings Inc and TJX Companies Inc are also represented in the XLY’s holdings at 2.35% and 2.12%.
Risk Analysis
| VNQ | XLY | |
| Mean Return | 0.89 | 1.47 |
| R-squared | 44.4 | 80.84 |
| Std. Deviation | 16.13 | 15.97 |
| Alpha | 2.47 | 6.96 |
| Beta | 0.76 | 1.02 |
| Sharpe Ratio | 0.62 | 1.06 |
| Treynor Ratio | 11.9 | 16.69 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Treynor Ratio of 11.9 with a Alpha of 2.47 and a Sharpe Ratio of 0.62. Its Mean Return is 0.89 while VNQ’s R-squared is 44.4. Furthermore, the fund has a Standard Deviation of 16.13 and a Beta of 0.76.
The Consumer Discretionary Select Sector SPDR Fund (XLY) has a Alpha of 6.96 with a R-squared of 80.84 and a Treynor Ratio of 16.69. Its Standard Deviation is 15.97 while XLY’s Beta is 1.02. Furthermore, the fund has a Sharpe Ratio of 1.06 and a Mean Return of 1.47.
VNQ’s Mean Return is 0.58 points lower than that of XLY and its R-squared is 36.44 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than XLY. The Alpha and Beta of VNQ are 4.49 points lower and 0.26 points lower than XLY’s Alpha and Beta.
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Performance
Annual Returns
| Year | VNQ | XLY |
| 2020 | -4.72% | 29.66% |
| 2019 | 28.91% | 28.43% |
| 2018 | -5.95% | 1.66% |
| 2017 | 4.95% | 22.77% |
| 2016 | 8.53% | 5.87% |
| 2015 | 2.37% | 9.93% |
| 2014 | 30.29% | 9.49% |
| 2013 | 2.42% | 42.74% |
| 2012 | 17.67% | 23.6% |
| 2011 | 8.62% | 5.98% |
| 2010 | 28.44% | 27.36% |
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 XLY, returning 42.74% on an annual basis. The poorest year for XLY in the last ten years was 2018, with a yield of 1.66%. Most years the Consumer Discretionary Select Sector SPDR Fund has given investors modest returns, such as in 2015, 2017, and 2012, when gains were 9.93%, 22.77%, and 23.6% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $29,506 | 11.05% |
| XLY | $10,000 | $63,066 | 18.86% |
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 XLY, the end total would have been $63,066. This equates to a $53,066 profit over 11 years and a compound annual growth rate (CAGR) of 18.86%.
VNQ’s CAGR is 7.81 percentage points lower than that of XLY and as a result, would have yielded $33,560 less on a $10,000 investment. Thus, VNQ performed worse than XLY by 7.81% annually.
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