The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the Energy Select Sector SPDR Fund (XLE) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and XLE is a SPDR State Street Global Advisors Equity Energy fund. So, what’s the difference between VWO and XLE? And which fund is better?
The expense ratio of VWO is 0.02 percentage points lower than XLE’s (0.1% vs. 0.12%). VWO also has a higher exposure to the financial services sector and a lower standard deviation. Overall, VWO has provided higher returns than XLE over the past ten years.
In this article, we’ll compare VWO vs. XLE. We’ll look at fund composition and performance, as well as at their portfolio growth and industry exposure. Moreover, I’ll also discuss VWO’s and XLE’s annual returns, holdings, and risk metrics and examine how these affect their overall returns.
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Summary
| VWO | XLE | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | Energy Select Sector SPDR Fund |
| Category | Diversified Emerging Mkts | Equity Energy |
| Issuer | Vanguard | SPDR State Street Global Advisors |
| AUM | 117.28B | 25.55B |
| Avg. Return | 5.79% | 1.28% |
| Div. Yield | 1.98% | 3.92% |
| Expense Ratio | 0.1% | 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 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%.
VWO’s dividend yield is 1.94% lower than that of XLE (1.98% vs. 3.92%). Also, VWO yielded on average 4.51% more per year over the past decade (5.79% vs. 1.28%). The expense ratio of VWO is 0.02 percentage points lower than XLE’s (0.1% vs. 0.12%).
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Fund Composition
Industry Exposure
| VWO | XLE | |
| Technology | 17.06% | 0.0% |
| Industrials | 5.95% | 0.0% |
| Energy | 5.48% | 100.0% |
| Communication Services | 11.41% | 0.0% |
| Utilities | 2.55% | 0.0% |
| Healthcare | 5.33% | 0.0% |
| Consumer Defensive | 5.87% | 0.0% |
| Real Estate | 3.13% | 0.0% |
| Financial Services | 18.15% | 0.0% |
| Consumer Cyclical | 16.1% | 0.0% |
| Basic Materials | 8.98% | 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 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%.
VWO is 18.15% more exposed to the Financial Services sector than XLE (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 86.06% less of the fund’s holdings compared to XLE (13.94% vs. 100.00%).
Holdings
| VWO Holdings | Weight |
| Tencent Holdings Ltd | 5.29% |
| Alibaba Group Holding Ltd Ordinary Shares | 4.73% |
| Taiwan Semiconductor Manufacturing Co Ltd | 4.58% |
| Meituan | 1.88% |
| Taiwan Semiconductor Manufacturing Co Ltd ADR | 1.7% |
| Reliance Industries Ltd Shs Dematerialised | 1.06% |
| Naspers Ltd Class N | 1.01% |
| Vale SA | 0.92% |
| Infosys Ltd | 0.91% |
| China Construction Bank Corp Class H | 0.84% |
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%.
| 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
| VWO | XLE | |
| Mean Return | 0.45 | 0.32 |
| R-squared | 81.69 | 61.84 |
| Std. Deviation | 17.64 | 27.52 |
| Alpha | -1.36 | -11.98 |
| Beta | 1.06 | 1.54 |
| Sharpe Ratio | 0.27 | 0.12 |
| Treynor Ratio | 3.14 | -0.4 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Alpha of -1.36 with a R-squared of 81.69 and a Standard Deviation of 17.64. Its Beta is 1.06 while VWO’s Treynor Ratio is 3.14. Furthermore, the fund has a Sharpe Ratio of 0.27 and a Mean Return of 0.45.
The Energy Select Sector SPDR Fund (XLE) has a R-squared of 61.84 with a Mean Return of 0.32 and a Alpha of -11.98. Its Standard Deviation is 27.52 while XLE’s Sharpe Ratio is 0.12. Furthermore, the fund has a Treynor Ratio of -0.4 and a Beta of 1.54.
VWO’s Mean Return is 0.13 points higher than that of XLE and its R-squared is 19.85 points higher. With a Standard Deviation of 17.64, VWO is slightly less volatile than XLE. The Alpha and Beta of VWO are 10.62 points higher and 0.48 points lower than XLE’s Alpha and Beta.
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Performance
Annual Returns
| Year | VWO | XLE |
| 2020 | 15.32% | -32.56% |
| 2019 | 20.4% | 11.87% |
| 2018 | -14.57% | -18.1% |
| 2017 | 31.38% | -1.01% |
| 2016 | 11.75% | 27.95% |
| 2015 | -15.35% | -21.47% |
| 2014 | 0.6% | -8.61% |
| 2013 | -5.0% | 26.16% |
| 2012 | 18.84% | 5.17% |
| 2011 | -18.68% | 2.98% |
| 2010 | 18.99% | 21.7% |
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 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 |
| VWO | $10,000 | $16,200 | 5.79% |
| XLE | $10,000 | $9,339 | 1.28% |
A $10,000 investment in VWO would have resulted in a final balance of $16,200. This is a profit of $6,200 over 11 years and amounts to a compound annual growth rate (CAGR) of 5.79%.
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%.
VWO’s CAGR is 4.51 percentage points higher than that of XLE and as a result, would have yielded $6,861 more on a $10,000 investment. Thus, VWO outperformed XLE by 4.51% annually.
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