The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the Consumer Discretionary Select Sector SPDR Fund (XLY) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and XLY is a SPDR State Street Global Advisors Consumer Cyclical fund. So, what’s the difference between VWO and XLY? And which fund is better?
The expense ratio of VWO is 0.02 percentage points lower than XLY’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 XLY over the past ten years.
In this article, we’ll compare VWO vs. XLY. We’ll look at portfolio growth and annual returns, as well as at their industry exposure and fund composition. Moreover, I’ll also discuss VWO’s and XLY’s performance, risk metrics, and holdings and examine how these affect their overall returns.
Summary
| VWO | XLY | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | Consumer Discretionary Select Sector SPDR Fund |
| Category | Diversified Emerging Mkts | Consumer Cyclical |
| Issuer | Vanguard | SPDR State Street Global Advisors |
| AUM | 117.28B | 20.21B |
| Avg. Return | 5.79% | 18.86% |
| Div. Yield | 1.98% | 0.63% |
| 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 Consumer Discretionary Select Sector SPDR Fund (XLY) is a Consumer Cyclical fund that is issued by SPDR State Street Global Advisors. It currently has 20.21B total assets under management and has yielded an average annual return of 18.86% over the past 10 years. The fund has a dividend yield of 0.63% with an expense ratio of 0.12%.
VWO’s dividend yield is 1.35% higher than that of XLY (1.98% vs. 0.63%). Also, VWO yielded on average 13.07% less per year over the past decade (5.79% vs. 18.86%). The expense ratio of VWO is 0.02 percentage points lower than XLY’s (0.1% vs. 0.12%).
Fund Composition
Industry Exposure
| VWO | XLY | |
| Technology | 17.06% | 0.57% |
| Industrials | 5.95% | 0.0% |
| 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% | 5.34% |
| Real Estate | 3.13% | 0.0% |
| Financial Services | 18.15% | 0.0% |
| Consumer Cyclical | 16.1% | 94.1% |
| 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 Consumer Discretionary Select Sector SPDR Fund (XLY) has the most exposure to the Consumer Cyclical sector at 94.1%. This is followed by Consumer Defensive and Technology at 5.34% and 0.57% respectively. Financial Services (0.0%), Real Estate (0.0%), and Healthcare (0.0%) only make up 0.00% of the fund’s total assets.
XLY’s mid-section with moderate exposure is comprised of Utilities, Communication Services, Energy, Industrials, and Technology stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.57%.
VWO is 18.15% more exposed to the Financial Services sector than XLY (18.15% vs 0.0%). VWO’s exposure to Technology and Consumer Cyclical stocks is 16.49% higher and 78.00% lower respectively (17.06% vs. 0.57% and 16.1% vs. 94.1%). In total, Real Estate, Healthcare, and Energy also make up 13.94% more of the fund’s holdings compared to XLY (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%.
| XLY Holdings | Weight |
| Amazon.com Inc | 22.9% |
| Tesla Inc | 13.5% |
| The Home Depot Inc | 8.74% |
| McDonald’s Corp | 4.5% |
| Nike Inc B | 4.45% |
| Lowe’s Companies Inc | 3.58% |
| Starbucks Corp | 3.44% |
| Target Corp | 3.12% |
| Booking Holdings Inc | 2.35% |
| TJX Companies Inc | 2.12% |
XLY’s Top Holdings are Amazon.com Inc, Tesla Inc, The Home Depot Inc, McDonald’s Corp, and Nike Inc B at 22.9%, 13.5%, 8.74%, 4.5%, and 4.45%.
Lowe’s Companies Inc (3.58%), Starbucks Corp (3.44%), and Target Corp (3.12%) have a slightly smaller but still significant weight. Booking Holdings Inc and TJX Companies Inc are also represented in the XLY’s holdings at 2.35% and 2.12%.
Risk Analysis
| VWO | XLY | |
| Mean Return | 0.45 | 1.47 |
| R-squared | 81.69 | 80.84 |
| Std. Deviation | 17.64 | 15.97 |
| Alpha | -1.36 | 6.96 |
| Beta | 1.06 | 1.02 |
| Sharpe Ratio | 0.27 | 1.06 |
| Treynor Ratio | 3.14 | 16.69 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Treynor Ratio of 3.14 with a R-squared of 81.69 and a Beta of 1.06. Its Mean Return is 0.45 while VWO’s Sharpe Ratio is 0.27. Furthermore, the fund has a Standard Deviation of 17.64 and a Alpha of -1.36.
The Consumer Discretionary Select Sector SPDR Fund (XLY) has a Sharpe Ratio of 1.06 with a Alpha of 6.96 and a R-squared of 80.84. Its Standard Deviation is 15.97 while XLY’s Beta is 1.02. Furthermore, the fund has a Mean Return of 1.47 and a Treynor Ratio of 16.69.
VWO’s Mean Return is 1.02 points lower than that of XLY and its R-squared is 0.85 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than XLY. The Alpha and Beta of VWO are 8.32 points lower and 0.04 points higher than XLY’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | XLY |
| 2020 | 15.32% | 29.66% |
| 2019 | 20.4% | 28.43% |
| 2018 | -14.57% | 1.66% |
| 2017 | 31.38% | 22.77% |
| 2016 | 11.75% | 5.87% |
| 2015 | -15.35% | 9.93% |
| 2014 | 0.6% | 9.49% |
| 2013 | -5.0% | 42.74% |
| 2012 | 18.84% | 23.6% |
| 2011 | -18.68% | 5.98% |
| 2010 | 18.99% | 27.36% |
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 XLY, returning 42.74% on an annual basis. The poorest year for XLY in the last ten years was 2018, with a yield of 1.66%. Most years the Consumer Discretionary Select Sector SPDR Fund has given investors modest returns, such as in 2015, 2017, and 2012, when gains were 9.93%, 22.77%, and 23.6% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| XLY | $10,000 | $63,066 | 18.86% |
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 XLY, the end total would have been $63,066. This equates to a $53,066 profit over 11 years and a compound annual growth rate (CAGR) of 18.86%.
VWO’s CAGR is 13.07 percentage points lower than that of XLY and as a result, would have yielded $46,866 less on a $10,000 investment. Thus, VWO performed worse than XLY by 13.07% annually.
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