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VWO vs. XLC: What’s The Difference?

The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the Communication Services Select Sector SPDR Fund (XLC) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and XLC is a SPDR State Street Global Advisors Communications fund. So, what’s the difference between VWO and XLC? And which fund is better?

The expense ratio of VWO is 0.02 percentage points lower than XLC’s (0.1% vs. 0.12%). VWO also has a higher exposure to the financial services sector and a higher standard deviation. Overall, VWO has provided lower returns than XLC over the past ten years.

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

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Summary

VWOXLC
NameVanguard FTSE Emerging Markets Index Fund ETF SharesCommunication Services Select Sector SPDR Fund
CategoryDiversified Emerging MktsCommunications
IssuerVanguardSPDR State Street Global Advisors
AUM117.28B14.09B
Avg. Return5.79%29.04%
Div. Yield1.98%0.62%
Expense Ratio0.1%0.12%

The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) is a Diversified Emerging Mkts fund that is issued by Vanguard. It currently has 117.28B total assets under management and has yielded an average annual return of 5.79% over the past 10 years. The fund has a dividend yield of 1.98% with an expense ratio of 0.1%.

The Communication Services Select Sector SPDR Fund (XLC) is a Communications fund that is issued by SPDR State Street Global Advisors. It currently has 14.09B total assets under management and has yielded an average annual return of 29.04% over the past 10 years. The fund has a dividend yield of 0.62% with an expense ratio of 0.12%.

VWO’s dividend yield is 1.36% higher than that of XLC (1.98% vs. 0.62%). Also, VWO yielded on average 23.25% less per year over the past decade (5.79% vs. 29.04%). The expense ratio of VWO is 0.02 percentage points lower than XLC’s (0.1% vs. 0.12%).

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Fund Composition

Industry Exposure

VWO vs. XLC - Industry Exposure

VWOXLC
Technology17.06%0.0%
Industrials5.95%0.0%
Energy5.48%0.0%
Communication Services11.41%100.0%
Utilities2.55%0.0%
Healthcare5.33%0.0%
Consumer Defensive5.87%0.0%
Real Estate3.13%0.0%
Financial Services18.15%0.0%
Consumer Cyclical16.1%0.0%
Basic Materials8.98%0.0%

The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has the most exposure to the Financial Services sector at 18.15%. This is followed by Technology and Consumer Cyclical at 17.06% and 16.1% respectively. Real Estate (3.13%), Healthcare (5.33%), and Energy (5.48%) only make up 13.94% of the fund’s total assets.

VWO’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Basic Materials, Communication Services, and Consumer Cyclical stocks at 5.87%, 5.95%, 8.98%, 11.41%, and 16.1%.

The Communication Services Select Sector SPDR Fund (XLC) has the most exposure to the Communication Services 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.

XLC’s mid-section with moderate exposure is comprised of Consumer Defensive, Healthcare, Utilities, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

VWO is 18.15% more exposed to the Financial Services sector than XLC (18.15% vs 0.0%). VWO’s exposure to Technology and Consumer Cyclical stocks is 17.06% higher and 16.10% higher respectively (17.06% vs. 0.0% and 16.1% vs. 0.0%). In total, Real Estate, Healthcare, and Energy also make up 13.94% more of the fund’s holdings compared to XLC (13.94% vs. 0.00%).

Holdings

VWO - Holdings

VWO HoldingsWeight
Tencent Holdings Ltd5.29%
Alibaba Group Holding Ltd Ordinary Shares4.73%
Taiwan Semiconductor Manufacturing Co Ltd4.58%
Meituan1.88%
Taiwan Semiconductor Manufacturing Co Ltd ADR1.7%
Reliance Industries Ltd Shs Dematerialised1.06%
Naspers Ltd Class N1.01%
Vale SA0.92%
Infosys Ltd0.91%
China Construction Bank Corp Class H0.84%

VWO’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Taiwan Semiconductor Manufacturing Co Ltd, Meituan, and Taiwan Semiconductor Manufacturing Co Ltd ADR at 5.29%, 4.73%, 4.58%, 1.88%, and 1.7%.

Reliance Industries Ltd Shs Dematerialised (1.06%), Naspers Ltd Class N (1.01%), and Vale SA (0.92%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the VWO’s holdings at 0.91% and 0.84%.

XLC - Holdings

XLC HoldingsWeight
Facebook Inc A23.75%
Alphabet Inc A11.49%
Alphabet Inc Class C11.16%
Netflix Inc4.78%
Charter Communications Inc A4.65%
Comcast Corp Class A4.44%
T-Mobile US Inc4.41%
The Walt Disney Co4.39%
AT&T Inc4.35%
Verizon Communications Inc4.33%

XLC’s Top Holdings are Facebook Inc A, Alphabet Inc A, Alphabet Inc Class C, Netflix Inc, and Charter Communications Inc A at 23.75%, 11.49%, 11.16%, 4.78%, and 4.65%.

Comcast Corp Class A (4.44%), T-Mobile US Inc (4.41%), and The Walt Disney Co (4.39%) have a slightly smaller but still significant weight. AT&T Inc and Verizon Communications Inc are also represented in the XLC’s holdings at 4.35% and 4.33%.

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Risk Analysis

VWOXLC
Mean Return0.450
R-squared81.690
Std. Deviation17.640
Alpha-1.360
Beta1.060
Sharpe Ratio0.270
Treynor Ratio3.140

The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Beta of 1.06 with a Alpha of -1.36 and a Mean Return of 0.45. Its R-squared is 81.69 while VWO’s Treynor Ratio is 3.14. Furthermore, the fund has a Sharpe Ratio of 0.27 and a Standard Deviation of 17.64.

The Communication Services Select Sector SPDR Fund (XLC) has a Alpha of 0 with a Mean Return of 0 and a Treynor Ratio of 0. Its Beta is 0 while XLC’s R-squared is 0. Furthermore, the fund has a Sharpe Ratio of 0 and a Standard Deviation of 0.

VWO’s Mean Return is 0.45 points higher than that of XLC and its R-squared is 81.69 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than XLC. The Alpha and Beta of VWO are 1.36 points lower and 1.06 points higher than XLC’s Alpha and Beta.

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Performance

Annual Returns

VWO vs. XLC - Annual Returns

YearVWOXLC
202015.32%26.85%
201920.4%31.22%
2018-14.57%0.0%
201731.38%0.0%
201611.75%0.0%
2015-15.35%0.0%
20140.6%0.0%
2013-5.0%0.0%
201218.84%0.0%
2011-18.68%0.0%
201018.99%0.0%

VWO had its best year in 2017 with an annual return of 31.38%. VWO’s worst year over the past decade yielded -18.68% and occurred in 2011. In most years the Vanguard FTSE Emerging Markets Index Fund ETF Shares provided moderate returns such as in 2014, 2016, and 2020 where annual returns amounted to 0.6%, 11.75%, and 15.32% respectively.

The year 2019 was the strongest year for XLC, returning 31.22% on an annual basis. The poorest year for XLC in the last ten years was 2018, with a yield of 0.0%. Most years the Communication Services Select Sector SPDR Fund has given investors modest returns, such as in 2014, 2013, and 2012, when gains were 0.0%, 0.0%, and 0.0% respectively.

Portfolio Growth

VWO vs. XLC - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VWO$10,000$13,8845.79%
XLC$10,000$16,64529.04%

A $10,000 investment in VWO would have resulted in a final balance of $13,884. This is a profit of $3,884 over 2 years and amounts to a compound annual growth rate (CAGR) of 5.79%.

With a $10,000 investment in XLC, the end total would have been $16,645. This equates to a $6,645 profit over 2 years and a compound annual growth rate (CAGR) of 29.04%.

VWO’s CAGR is 23.25 percentage points lower than that of XLC and as a result, would have yielded $2,761 less on a $10,000 investment. Thus, VWO performed worse than XLC by 23.25% annually.


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