XLF vs. VCIT: What’s The Difference?

The Financial Select Sector SPDR Fund (XLF) and the Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) are both among the Top 100 ETFs. XLF is a SPDR State Street Global Advisors Financial fund and VCIT is a Vanguard Corporate Bond fund. So, what’s the difference between XLF and VCIT? And which fund is better?

The expense ratio of XLF is 0.07 percentage points higher than VCIT’s (0.12% vs. 0.05%). XLF also has a high exposure to the financial services sector while VCIT is mostly comprised of BBB bonds. Overall, XLF has provided higher returns than VCIT over the past ten years.

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

Summary

XLF VCIT
Name Financial Select Sector SPDR Fund Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares
Category Financial Corporate Bond
Issuer SPDR State Street Global Advisors Vanguard
AUM 40.81B 48.39B
Avg. Return 12.17% 5.84%
Div. Yield 1.57% 2.33%
Expense Ratio 0.12% 0.05%

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 Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) is a Corporate Bond fund that is issued by Vanguard. It currently has 48.39B total assets under management and has yielded an average annual return of 5.84% over the past 10 years. The fund has a dividend yield of 2.33% with an expense ratio of 0.05%.

XLF’s dividend yield is 0.76% lower than that of VCIT (1.57% vs. 2.33%). Also, XLF yielded on average 6.32% more per year over the past decade (12.17% vs. 5.84%). The expense ratio of XLF is 0.07 percentage points higher than VCIT’s (0.12% vs. 0.05%).

Fund Composition

Holdings

XLF - Holdings

XLF Holdings Weight
Berkshire Hathaway Inc Class B 12.83%
JPMorgan Chase & Co 11.47%
Bank of America Corp 7.57%
Wells Fargo & Co 4.56%
Citigroup Inc 3.56%
Morgan Stanley 3.32%
Goldman Sachs Group Inc 3.15%
BlackRock Inc 3.02%
Charles Schwab Corp 2.66%
American Express Co 2.62%

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%.

VCIT - Holdings

VCIT Bond Sectors Weight
BBB 55.28%
A 37.85%
AA 5.22%
AAA 1.57%
Below B 0.08%
Others 0.0%
B 0.0%
BB 0.0%
US Government 0.0%

VCIT’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 55.28%, 37.85%, 5.22%, 1.57%, and 0.08%. The fund is less weighted towards Others (0.0%), B (0.0%), and BB (0.0%) rated bonds.

Risk Analysis

XLF VCIT
Mean Return 1.21 0.44
R-squared 73.26 63.18
Std. Deviation 18.86 5.08
Alpha 2.63 0.89
Beta 1.15 1.35
Sharpe Ratio 0.74 0.91
Treynor Ratio 11.25 3.43

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

The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) has a Standard Deviation of 5.08 with a Sharpe Ratio of 0.91 and a R-squared of 63.18. Its Beta is 1.35 while VCIT’s Alpha is 0.89. Furthermore, the fund has a Mean Return of 0.44 and a Treynor Ratio of 3.43.

XLF’s Mean Return is 0.77 points higher than that of VCIT and its R-squared is 10.08 points higher. With a Standard Deviation of 18.86, XLF is slightly more volatile than VCIT. The Alpha and Beta of XLF are 1.74 points higher and 0.20 points lower than VCIT’s Alpha and Beta.

Performance

Annual Returns

XLF vs. VCIT - Annual Returns

Year XLF VCIT
2020 -1.68% 9.55%
2019 31.88% 13.97%
2018 -13.09% -1.75%
2017 22.03% 5.5%
2016 22.55% 5.3%
2015 -1.6% 0.88%
2014 15.02% 7.47%
2013 35.37% -1.8%
2012 28.53% 11.36%
2011 -17.16% 7.94%
2010 11.97% 10.65%

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 VCIT, returning 13.97% on an annual basis. The poorest year for VCIT in the last ten years was 2013, with a yield of -1.8%. Most years the Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares has given investors modest returns, such as in 2017, 2014, and 2011, when gains were 5.5%, 7.47%, and 7.94% respectively.

Portfolio Growth

XLF vs. VCIT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLF $10,000 $27,491 12.17%
VCIT $10,000 $17,439 5.84%

A $10,000 investment in XLF would have resulted in a final balance of $27,491. This is a profit of $17,491 over 10 years and amounts to a compound annual growth rate (CAGR) of 12.17%.

With a $10,000 investment in VCIT, the end total would have been $17,439. This equates to a $7,439 profit over 10 years and a compound annual growth rate (CAGR) of 5.84%.

XLF’s CAGR is 6.32 percentage points higher than that of VCIT and as a result, would have yielded $10,052 more on a $10,000 investment. Thus, XLF outperformed VCIT by 6.32% annually.


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