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XLF vs. QUAL: What’s The Difference?

The Financial Select Sector SPDR Fund (XLF) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. XLF is a SPDR State Street Global Advisors Financial fund and QUAL is a iShares Large Blend fund. So, what’s the difference between XLF and QUAL? And which fund is better?

The expense ratio of XLF is 0.03 percentage points lower than QUAL’s (0.12% vs. 0.15%). XLF also has a higher exposure to the financial services sector and a higher standard deviation. Overall, XLF has provided lower returns than QUAL over the past ten years.

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

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Summary

XLFQUAL
NameFinancial Select Sector SPDR FundiShares MSCI USA Quality Factor ETF
CategoryFinancialLarge Blend
IssuerSPDR State Street Global AdvisorsiShares
AUM40.81B23.93B
Avg. Return12.17%13.42%
Div. Yield1.57%1.29%
Expense Ratio0.12%0.15%

The Financial Select Sector SPDR Fund (XLF) is a Financial fund that is issued by SPDR State Street Global Advisors. It currently has 40.81B total assets under management and has yielded an average annual return of 12.17% over the past 10 years. The fund has a dividend yield of 1.57% with an expense ratio of 0.12%.

The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

XLF’s dividend yield is 0.28% higher than that of QUAL (1.57% vs. 1.29%). Also, XLF yielded on average 1.26% less per year over the past decade (12.17% vs. 13.42%). The expense ratio of XLF is 0.03 percentage points lower than QUAL’s (0.12% vs. 0.15%).

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Fund Composition

Industry Exposure

XLF vs. QUAL - Industry Exposure

XLFQUAL
Technology0.0%22.52%
Industrials0.0%9.22%
Energy0.0%2.24%
Communication Services0.0%11.44%
Utilities0.0%2.41%
Healthcare0.0%13.22%
Consumer Defensive0.0%8.57%
Real Estate0.0%2.72%
Financial Services100.0%15.87%
Consumer Cyclical0.0%9.43%
Basic Materials0.0%2.35%

The Financial Select Sector SPDR Fund (XLF) has the most exposure to the Financial Services sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Real Estate (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

XLF’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

XLF is 84.13% more exposed to the Financial Services sector than QUAL (100.0% vs 15.87%). XLF’s exposure to Technology and Industrials stocks is 22.52% lower and 9.22% lower respectively (0.0% vs. 22.52% and 0.0% vs. 9.22%). In total, Consumer Cyclical, Real Estate, and Consumer Defensive also make up 20.72% less of the fund’s holdings compared to QUAL (0.00% vs. 20.72%).

Holdings

XLF - Holdings

XLF HoldingsWeight
Berkshire Hathaway Inc Class B12.83%
JPMorgan Chase & Co11.47%
Bank of America Corp7.57%
Wells Fargo & Co4.56%
Citigroup Inc3.56%
Morgan Stanley3.32%
Goldman Sachs Group Inc3.15%
BlackRock Inc3.02%
Charles Schwab Corp2.66%
American Express Co2.62%

XLF’s Top Holdings are Berkshire Hathaway Inc Class B, JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co, and Citigroup Inc at 12.83%, 11.47%, 7.57%, 4.56%, and 3.56%.

Morgan Stanley (3.32%), Goldman Sachs Group Inc (3.15%), and BlackRock Inc (3.02%) have a slightly smaller but still significant weight. Charles Schwab Corp and American Express Co are also represented in the XLF’s holdings at 2.66% and 2.62%.

QUAL - Holdings

QUAL HoldingsWeight
Facebook Inc Class A4.77%
Nike Inc Class B4.05%
Microsoft Corp3.54%
Apple Inc3.52%
Johnson & Johnson2.99%
BlackRock Inc2.87%
Target Corp2.8%
Mastercard Inc Class A2.72%
NVIDIA Corp2.71%
Alphabet Inc Class A2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

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Risk Analysis

XLFQUAL
Mean Return1.210
R-squared73.260
Std. Deviation18.860
Alpha2.630
Beta1.150
Sharpe Ratio0.740
Treynor Ratio11.250

The Financial Select Sector SPDR Fund (XLF) has a Alpha of 2.63 with a R-squared of 73.26 and a Sharpe Ratio of 0.74. Its Mean Return is 1.21 while XLF’s Beta is 1.15. Furthermore, the fund has a Standard Deviation of 18.86 and a Treynor Ratio of 11.25.

The iShares MSCI USA Quality Factor ETF (QUAL) has a Treynor Ratio of 0 with a Sharpe Ratio of 0 and a Standard Deviation of 0. Its Mean Return is 0 while QUAL’s R-squared is 0. Furthermore, the fund has a Alpha of 0 and a Beta of 0.

XLF’s Mean Return is 1.21 points higher than that of QUAL and its R-squared is 73.26 points higher. With a Standard Deviation of 18.86, XLF is slightly more volatile than QUAL. The Alpha and Beta of XLF are 2.63 points higher and 1.15 points higher than QUAL’s Alpha and Beta.

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Performance

Annual Returns

XLF vs. QUAL - Annual Returns

YearXLFQUAL
2020-1.68%16.96%
201931.88%34.14%
2018-13.09%-5.77%
201722.03%22.26%
201622.55%9.18%
2015-1.6%5.56%
201415.02%11.62%
201335.37%0.0%
201228.53%0.0%
2011-17.16%0.0%
201011.97%0.0%

XLF had its best year in 2013 with an annual return of 35.37%. XLF’s worst year over the past decade yielded -17.16% and occurred in 2011. In most years the Financial Select Sector SPDR Fund provided moderate returns such as in 2010, 2014, and 2017 where annual returns amounted to 11.97%, 15.02%, and 22.03% respectively.

The year 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

XLF vs. QUAL - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
XLF$10,000$19,07312.17%
QUAL$10,000$23,25113.42%

A $10,000 investment in XLF would have resulted in a final balance of $19,073. This is a profit of $9,073 over 7 years and amounts to a compound annual growth rate (CAGR) of 12.17%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

XLF’s CAGR is 1.26 percentage points lower than that of QUAL and as a result, would have yielded $4,178 less on a $10,000 investment. Thus, XLF performed worse than QUAL by 1.26% annually.


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