XLF vs. VEU: What’s The Difference?

The Financial Select Sector SPDR Fund (XLF) and the Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) are both among the Top 100 ETFs. XLF is a SPDR State Street Global Advisors Financial fund and VEU is a Vanguard Foreign Large Blend fund. So, what’s the difference between XLF and VEU? And which fund is better?

The expense ratio of XLF is 0.04 percentage points higher than VEU’s (0.12% vs. 0.08%). XLF also has a higher exposure to the financial services sector and a higher standard deviation. Overall, XLF has provided higher returns than VEU over the past ten years.

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

Summary

XLF VEU
Name Financial Select Sector SPDR Fund Vanguard FTSE All-World ex-US Index Fund ETF Shares
Category Financial Foreign Large Blend
Issuer SPDR State Street Global Advisors Vanguard
AUM 40.81B 53.64B
Avg. Return 12.17% 6.64%
Div. Yield 1.57% 2.31%
Expense Ratio 0.12% 0.08%

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 FTSE All-World ex-US Index Fund ETF Shares (VEU) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 53.64B total assets under management and has yielded an average annual return of 6.64% over the past 10 years. The fund has a dividend yield of 2.31% with an expense ratio of 0.08%.

XLF’s dividend yield is 0.74% lower than that of VEU (1.57% vs. 2.31%). Also, XLF yielded on average 5.53% more per year over the past decade (12.17% vs. 6.64%). The expense ratio of XLF is 0.04 percentage points higher than VEU’s (0.12% vs. 0.08%).

Fund Composition

Industry Exposure

XLF vs. VEU - Industry Exposure

XLF VEU
Technology 0.0% 12.94%
Industrials 0.0% 12.19%
Energy 0.0% 4.69%
Communication Services 0.0% 7.44%
Utilities 0.0% 2.89%
Healthcare 0.0% 9.34%
Consumer Defensive 0.0% 8.28%
Real Estate 0.0% 3.04%
Financial Services 100.0% 18.46%
Consumer Cyclical 0.0% 12.57%
Basic Materials 0.0% 8.17%

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 Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has the most exposure to the Financial Services sector at 18.46%. This is followed by Technology and Consumer Cyclical at 12.94% and 12.57% respectively. Real Estate (3.04%), Energy (4.69%), and Communication Services (7.44%) only make up 15.17% of the fund’s total assets.

VEU’s mid-section with moderate exposure is comprised of Basic Materials, Consumer Defensive, Healthcare, Industrials, and Consumer Cyclical stocks at 8.17%, 8.28%, 9.34%, 12.19%, and 12.57%.

XLF is 81.54% more exposed to the Financial Services sector than VEU (100.0% vs 18.46%). XLF’s exposure to Technology and Industrials stocks is 12.94% lower and 12.19% lower respectively (0.0% vs. 12.94% and 0.0% vs. 12.19%). In total, Consumer Cyclical, Real Estate, and Consumer Defensive also make up 23.89% less of the fund’s holdings compared to VEU (0.00% vs. 23.89%).

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%.

VEU - Holdings

VEU Holdings Weight
Tencent Holdings Ltd 1.57%
Alibaba Group Holding Ltd Ordinary Shares 1.4%
Nestle SA 1.22%
Taiwan Semiconductor Manufacturing Co Ltd 0.98%
ASML Holding NV 0.95%
Taiwan Semiconductor Manufacturing Co Ltd ADR 0.91%
Roche Holding AG 0.91%
Toyota Motor Corp 0.75%
LVMH Moet Hennessy Louis Vuitton SE 0.68%
Novartis AG 0.67%

VEU’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Nestle SA, Taiwan Semiconductor Manufacturing Co Ltd, and ASML Holding NV at 1.57%, 1.4%, 1.22%, 0.98%, and 0.95%.

Taiwan Semiconductor Manufacturing Co Ltd ADR (0.91%), Roche Holding AG (0.91%), and Toyota Motor Corp (0.75%) have a slightly smaller but still significant weight. LVMH Moet Hennessy Louis Vuitton SE and Novartis AG are also represented in the VEU’s holdings at 0.68% and 0.67%.

Risk Analysis

XLF VEU
Mean Return 1.21 0.56
R-squared 73.26 98.44
Std. Deviation 18.86 15.08
Alpha 2.63 0.28
Beta 1.15 0.99
Sharpe Ratio 0.74 0.4
Treynor Ratio 11.25 5.12

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

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has a Beta of 0.99 with a Standard Deviation of 15.08 and a R-squared of 98.44. Its Mean Return is 0.56 while VEU’s Treynor Ratio is 5.12. Furthermore, the fund has a Sharpe Ratio of 0.4 and a Alpha of 0.28.

XLF’s Mean Return is 0.65 points higher than that of VEU and its R-squared is 25.18 points lower. With a Standard Deviation of 18.86, XLF is slightly more volatile than VEU. The Alpha and Beta of XLF are 2.35 points higher and 0.16 points higher than VEU’s Alpha and Beta.

Performance

Annual Returns

XLF vs. VEU - Annual Returns

Year XLF VEU
2020 -1.68% 11.39%
2019 31.88% 21.63%
2018 -13.09% -13.97%
2017 22.03% 27.27%
2016 22.55% 4.77%
2015 -1.6% -4.67%
2014 15.02% -4.05%
2013 35.37% 14.5%
2012 28.53% 18.55%
2011 -17.16% -14.25%
2010 11.97% 11.85%

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 2017 was the strongest year for VEU, returning 27.27% on an annual basis. The poorest year for VEU in the last ten years was 2011, with a yield of -14.25%. Most years the Vanguard FTSE All-World ex-US Index Fund ETF Shares has given investors modest returns, such as in 2016, 2020, and 2010, when gains were 4.77%, 11.39%, and 11.85% respectively.

Portfolio Growth

XLF vs. VEU - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLF $10,000 $30,782 12.17%
VEU $10,000 $18,507 6.64%

A $10,000 investment in XLF would have resulted in a final balance of $30,782. This is a profit of $20,782 over 11 years and amounts to a compound annual growth rate (CAGR) of 12.17%.

With a $10,000 investment in VEU, the end total would have been $18,507. This equates to a $8,507 profit over 11 years and a compound annual growth rate (CAGR) of 6.64%.

XLF’s CAGR is 5.53 percentage points higher than that of VEU and as a result, would have yielded $12,275 more on a $10,000 investment. Thus, XLF outperformed VEU by 5.53% annually.


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