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VWO vs. XLV: What’s The Difference?

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

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

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

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Summary

VWOXLV
NameVanguard FTSE Emerging Markets Index Fund ETF SharesHealth Care Select Sector SPDR Fund
CategoryDiversified Emerging MktsHealth
IssuerVanguardSPDR State Street Global Advisors
AUM117.28B27.88B
Avg. Return5.79%15.02%
Div. Yield1.98%1.4%
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 Health Care Select Sector SPDR Fund (XLV) is a Health fund that is issued by SPDR State Street Global Advisors. It currently has 27.88B total assets under management and has yielded an average annual return of 15.02% over the past 10 years. The fund has a dividend yield of 1.4% with an expense ratio of 0.12%.

VWO’s dividend yield is 0.58% higher than that of XLV (1.98% vs. 1.4%). Also, VWO yielded on average 9.24% less per year over the past decade (5.79% vs. 15.02%). The expense ratio of VWO is 0.02 percentage points lower than XLV’s (0.1% vs. 0.12%).

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Fund Composition

Industry Exposure

VWO vs. XLV - Industry Exposure

VWOXLV
Technology17.06%0.0%
Industrials5.95%0.0%
Energy5.48%0.0%
Communication Services11.41%0.0%
Utilities2.55%0.0%
Healthcare5.33%100.0%
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 Health Care Select Sector SPDR Fund (XLV) has the most exposure to the Healthcare 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.

XLV’s mid-section with moderate exposure is comprised of Consumer Defensive, Utilities, Communication Services, 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 XLV (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 XLV (13.94% vs. 100.00%).

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%.

XLV - Holdings

XLV HoldingsWeight
Johnson & Johnson9.19%
UnitedHealth Group Inc8.01%
Pfizer Inc4.64%
Abbott Laboratories4.36%
AbbVie Inc4.21%
Thermo Fisher Scientific Inc4.2%
Merck & Co Inc4.17%
Eli Lilly and Co3.87%
Danaher Corp3.61%
Medtronic PLC3.54%

XLV’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and AbbVie Inc at 9.19%, 8.01%, 4.64%, 4.36%, and 4.21%.

Thermo Fisher Scientific Inc (4.2%), Merck & Co Inc (4.17%), and Eli Lilly and Co (3.87%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the XLV’s holdings at 3.61% and 3.54%.

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Risk Analysis

VWOXLV
Mean Return0.451.27
R-squared81.6958.19
Std. Deviation17.6412.94
Alpha-1.367.75
Beta1.060.7
Sharpe Ratio0.271.13
Treynor Ratio3.1421.1

The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Beta of 1.06 with a R-squared of 81.69 and a Alpha of -1.36. Its Mean Return is 0.45 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 Health Care Select Sector SPDR Fund (XLV) has a Treynor Ratio of 21.1 with a R-squared of 58.19 and a Mean Return of 1.27. Its Alpha is 7.75 while XLV’s Standard Deviation is 12.94. Furthermore, the fund has a Beta of 0.7 and a Sharpe Ratio of 1.13.

VWO’s Mean Return is 0.82 points lower than that of XLV and its R-squared is 23.50 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than XLV. The Alpha and Beta of VWO are 9.11 points lower and 0.36 points higher than XLV’s Alpha and Beta.

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Performance

Annual Returns

VWO vs. XLV - Annual Returns

YearVWOXLV
202015.32%13.33%
201920.4%20.63%
2018-14.57%6.3%
201731.38%21.7%
201611.75%-2.83%
2015-15.35%6.82%
20140.6%25.17%
2013-5.0%41.24%
201218.84%17.56%
2011-18.68%12.44%
201018.99%2.91%

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 XLV, returning 41.24% on an annual basis. The poorest year for XLV in the last ten years was 2016, with a yield of -2.83%. Most years the Health Care Select Sector SPDR Fund has given investors modest returns, such as in 2011, 2020, and 2012, when gains were 12.44%, 13.33%, and 17.56% respectively.

Portfolio Growth

VWO vs. XLV - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VWO$10,000$16,2005.79%
XLV$10,000$44,14715.02%

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 XLV, the end total would have been $44,147. This equates to a $34,147 profit over 11 years and a compound annual growth rate (CAGR) of 15.02%.

VWO’s CAGR is 9.24 percentage points lower than that of XLV and as a result, would have yielded $27,947 less on a $10,000 investment. Thus, VWO performed worse than XLV by 9.24% annually.


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