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.
Summary
| VWO | XLI | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | Industrial Select Sector SPDR Fund |
| Category | Diversified Emerging Mkts | Industrials |
| Issuer | Vanguard | SPDR State Street Global Advisors |
| AUM | 117.28B | 19.33B |
| Avg. Return | 5.79% | 14.44% |
| Div. Yield | 1.98% | 1.25% |
| 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 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%).
Fund Composition
Industry Exposure
| VWO | XLI | |
| Technology | 17.06% | 1.82% |
| Industrials | 5.95% | 97.49% |
| Energy | 5.48% | 0.0% |
| 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% | 0.69% |
| 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 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 | 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%.
| XLI Holdings | Weight |
| Honeywell International Inc | 4.9% |
| United Parcel Service Inc Class B | 4.84% |
| Union Pacific Corp | 4.7% |
| Boeing Co | 4.24% |
| Raytheon Technologies Corp | 4.16% |
| Caterpillar Inc | 3.84% |
| General Electric Co | 3.8% |
| 3M Co | 3.7% |
| Deere & Co | 3.54% |
| Lockheed Martin Corp | 2.98% |
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%.
Risk Analysis
| VWO | XLI | |
| Mean Return | 0.45 | 1.14 |
| R-squared | 81.69 | 78.97 |
| Std. Deviation | 17.64 | 17.13 |
| Alpha | -1.36 | 2.38 |
| Beta | 1.06 | 1.08 |
| Sharpe Ratio | 0.27 | 0.76 |
| Treynor Ratio | 3.14 | 11.34 |
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.
Performance
Annual Returns
| Year | VWO | XLI |
| 2020 | 15.32% | 11.0% |
| 2019 | 20.4% | 29.11% |
| 2018 | -14.57% | -13.1% |
| 2017 | 31.38% | 23.85% |
| 2016 | 11.75% | 19.93% |
| 2015 | -15.35% | -4.27% |
| 2014 | 0.6% | 10.44% |
| 2013 | -5.0% | 40.44% |
| 2012 | 18.84% | 14.86% |
| 2011 | -18.68% | -1.01% |
| 2010 | 18.99% | 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
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| XLI | $10,000 | $39,853 | 14.44% |
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.
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