Skip to content

VWO vs. XLI: What’s The Difference?

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

The expense ratio of VWO is 0.02 percentage points lower than XLI’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 XLI over the past ten years.

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

TIP: Keep track of all your investments with Personal Capital. I use this amazing tool to aggregate all investments in one place and make sure I'm on track to financial freedom. Oh, and did I mention it's free? Try it out here (link to Personal Capital).

Summary

VWOXLI
NameVanguard FTSE Emerging Markets Index Fund ETF SharesIndustrial Select Sector SPDR Fund
CategoryDiversified Emerging MktsIndustrials
IssuerVanguardSPDR State Street Global Advisors
AUM117.28B19.33B
Avg. Return5.79%14.44%
Div. Yield1.98%1.25%
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 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%.

VWO’s dividend yield is 0.73% higher than that of XLI (1.98% vs. 1.25%). Also, VWO yielded on average 8.65% less per year over the past decade (5.79% vs. 14.44%). The expense ratio of VWO is 0.02 percentage points lower than XLI’s (0.1% vs. 0.12%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

Fund Composition

Industry Exposure

VWO vs. XLI - Industry Exposure

VWOXLI
Technology17.06%1.82%
Industrials5.95%97.49%
Energy5.48%0.0%
Communication Services11.41%0.0%
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%0.69%
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 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%.

VWO is 18.15% more exposed to the Financial Services sector than XLI (18.15% vs 0.0%). VWO’s exposure to Technology and Consumer Cyclical stocks is 15.24% higher and 15.41% higher respectively (17.06% vs. 1.82% and 16.1% vs. 0.69%). In total, Real Estate, Healthcare, and Energy also make up 13.94% more of the fund’s holdings compared to XLI (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%.

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%.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Risk Analysis

VWOXLI
Mean Return0.451.14
R-squared81.6978.97
Std. Deviation17.6417.13
Alpha-1.362.38
Beta1.061.08
Sharpe Ratio0.270.76
Treynor Ratio3.1411.34

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 Treynor Ratio of 3.14. Its Mean Return is 0.45 while VWO’s Beta is 1.06. Furthermore, the fund has a Standard Deviation of 17.64 and a Sharpe Ratio of 0.27.

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

VWO’s Mean Return is 0.69 points lower than that of XLI and its R-squared is 2.72 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than XLI. The Alpha and Beta of VWO are 3.74 points lower and 0.02 points lower than XLI’s Alpha and Beta.

FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!

Performance

Annual Returns

VWO vs. XLI - Annual Returns

YearVWOXLI
202015.32%11.0%
201920.4%29.11%
2018-14.57%-13.1%
201731.38%23.85%
201611.75%19.93%
2015-15.35%-4.27%
20140.6%10.44%
2013-5.0%40.44%
201218.84%14.86%
2011-18.68%-1.01%
201018.99%27.62%

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 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

VWO vs. XLI - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VWO$10,000$16,2005.79%
XLI$10,000$39,85314.44%

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 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%.

VWO’s CAGR is 8.65 percentage points lower than that of XLI and as a result, would have yielded $23,653 less on a $10,000 investment. Thus, VWO performed worse than XLI by 8.65% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!

2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.

5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply

Your email address will not be published.