Skip to content

XLF vs. VCSH: What’s The Difference?

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

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

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

Introduction To Mutual Funds
Introduction To Mutual Funds
TIP: Keep track of all your investments with Personal Capital. I use this amazing tool to aggregate all investments in one place and make sure I'm on track to financial freedom. Oh, and did I mention it's free? Try it out here (link to Personal Capital).

Summary

XLFVCSH
NameFinancial Select Sector SPDR FundVanguard Short-Term Corporate Bond Index Fund ETF Shares
CategoryFinancialShort-Term Bond
IssuerSPDR State Street Global AdvisorsVanguard
AUM40.81B47.88B
Avg. Return12.17%3.12%
Div. Yield1.57%1.89%
Expense Ratio0.12%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 Short-Term Corporate Bond Index Fund ETF Shares (VCSH) is a Short-Term Bond fund that is issued by Vanguard. It currently has 47.88B total assets under management and has yielded an average annual return of 3.12% over the past 10 years. The fund has a dividend yield of 1.89% with an expense ratio of 0.05%.

XLF’s dividend yield is 0.32% lower than that of VCSH (1.57% vs. 1.89%). Also, XLF yielded on average 9.05% more per year over the past decade (12.17% vs. 3.12%). The expense ratio of XLF is 0.07 percentage points higher than VCSH’s (0.12% vs. 0.05%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

Fund Composition

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%.

VCSH - Holdings

VCSH Bond SectorsWeight
BBB47.49%
A43.06%
AA8.45%
AAA0.95%
Below B0.03%
Others0.02%
B0.0%
BB0.0%
US Government0.0%

VCSH’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 47.49%, 43.06%, 8.45%, 0.95%, and 0.03%. The fund is less weighted towards Others (0.02%), B (0.0%), and BB (0.0%) rated bonds.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Risk Analysis

XLFVCSH
Mean Return1.210.24
R-squared73.2637.53
Std. Deviation18.862.34
Alpha2.630.93
Beta1.150.48
Sharpe Ratio0.740.97
Treynor Ratio11.254.75

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

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) has a Beta of 0.48 with a Treynor Ratio of 4.75 and a Alpha of 0.93. Its Sharpe Ratio is 0.97 while VCSH’s Standard Deviation is 2.34. Furthermore, the fund has a Mean Return of 0.24 and a R-squared of 37.53.

XLF’s Mean Return is 0.97 points higher than that of VCSH and its R-squared is 35.73 points higher. With a Standard Deviation of 18.86, XLF is slightly more volatile than VCSH. The Alpha and Beta of XLF are 1.70 points higher and 0.67 points higher than VCSH’s Alpha and Beta.

FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!

Performance

Annual Returns

XLF vs. VCSH - Annual Returns

YearXLFVCSH
2020-1.68%5.08%
201931.88%6.85%
2018-13.09%0.91%
201722.03%2.45%
201622.55%2.63%
2015-1.6%1.25%
201415.02%1.96%
201335.37%1.37%
201228.53%5.74%
2011-17.16%2.94%
201011.97%5.51%

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 VCSH, returning 6.85% on an annual basis. The poorest year for VCSH in the last ten years was 2018, with a yield of 0.91%. Most years the Vanguard Short-Term Corporate Bond Index Fund ETF Shares has given investors modest returns, such as in 2017, 2016, and 2011, when gains were 2.45%, 2.63%, and 2.94% respectively.

Portfolio Growth

XLF vs. VCSH - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
XLF$10,000$27,49112.17%
VCSH$10,000$13,5693.12%

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 VCSH, the end total would have been $13,569. This equates to a $3,569 profit over 10 years and a compound annual growth rate (CAGR) of 3.12%.

XLF’s CAGR is 9.05 percentage points higher than that of VCSH and as a result, would have yielded $13,922 more on a $10,000 investment. Thus, XLF outperformed VCSH by 9.05% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!

2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.

5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply

Your email address will not be published.