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XLF vs. VYM: What’s The Difference?

The Financial Select Sector SPDR Fund (XLF) and the Vanguard High Dividend Yield Index Fund ETF Shares (VYM) are both among the Top 100 ETFs. XLF is a SPDR State Street Global Advisors Financial fund and VYM is a Vanguard Large Value fund. So, what’s the difference between XLF and VYM? And which fund is better?

The expense ratio of XLF is 0.06 percentage points higher than VYM’s (0.12% vs. 0.06%). XLF also has a higher exposure to the financial services sector and a higher standard deviation. Overall, XLF has provided lower returns than VYM over the past ten years.

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

Introduction To Mutual Funds
Introduction To Mutual Funds
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Summary

XLFVYM
NameFinancial Select Sector SPDR FundVanguard High Dividend Yield Index Fund ETF Shares
CategoryFinancialLarge Value
IssuerSPDR State Street Global AdvisorsVanguard
AUM40.81B48.5B
Avg. Return12.17%12.20%
Div. Yield1.57%2.79%
Expense Ratio0.12%0.06%

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 High Dividend Yield Index Fund ETF Shares (VYM) is a Large Value fund that is issued by Vanguard. It currently has 48.5B total assets under management and has yielded an average annual return of 12.20% over the past 10 years. The fund has a dividend yield of 2.79% with an expense ratio of 0.06%.

XLF’s dividend yield is 1.22% lower than that of VYM (1.57% vs. 2.79%). Also, XLF yielded on average 0.03% less per year over the past decade (12.17% vs. 12.20%). The expense ratio of XLF is 0.06 percentage points higher than VYM’s (0.12% vs. 0.06%).

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Fund Composition

Industry Exposure

XLF vs. VYM - Industry Exposure

XLFVYM
Technology0.0%9.77%
Industrials0.0%10.14%
Energy0.0%7.12%
Communication Services0.0%5.91%
Utilities0.0%7.27%
Healthcare0.0%13.61%
Consumer Defensive0.0%14.13%
Real Estate0.0%0.02%
Financial Services100.0%22.05%
Consumer Cyclical0.0%5.57%
Basic Materials0.0%4.41%

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 High Dividend Yield Index Fund ETF Shares (VYM) has the most exposure to the Financial Services sector at 22.05%. This is followed by Consumer Defensive and Healthcare at 14.13% and 13.61% respectively. Basic Materials (4.41%), Consumer Cyclical (5.57%), and Communication Services (5.91%) only make up 15.89% of the fund’s total assets.

VYM’s mid-section with moderate exposure is comprised of Energy, Utilities, Technology, Industrials, and Healthcare stocks at 7.12%, 7.27%, 9.77%, 10.14%, and 13.61%.

XLF is 77.95% more exposed to the Financial Services sector than VYM (100.0% vs 22.05%). XLF’s exposure to Technology and Industrials stocks is 9.77% lower and 10.14% lower respectively (0.0% vs. 9.77% and 0.0% vs. 10.14%). In total, Consumer Cyclical, Real Estate, and Consumer Defensive also make up 19.72% less of the fund’s holdings compared to VYM (0.00% vs. 19.72%).

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%.

VYM - Holdings

VYM HoldingsWeight
JPMorgan Chase & Co3.53%
Johnson & Johnson3.28%
The Home Depot Inc2.59%
Procter & Gamble Co2.48%
Bank of America Corp2.35%
Exxon Mobil Corp2.02%
Comcast Corp Class A1.96%
Verizon Communications Inc1.75%
Intel Corp1.71%
Cisco Systems Inc1.69%

VYM’s Top Holdings are JPMorgan Chase & Co, Johnson & Johnson, The Home Depot Inc, Procter & Gamble Co, and Bank of America Corp at 3.53%, 3.28%, 2.59%, 2.48%, and 2.35%.

Exxon Mobil Corp (2.02%), Comcast Corp Class A (1.96%), and Verizon Communications Inc (1.75%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the VYM’s holdings at 1.71% and 1.69%.

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Risk Analysis

XLFVYM
Mean Return1.211.04
R-squared73.2688.88
Std. Deviation18.8612.69
Alpha2.63-0.7
Beta1.150.88
Sharpe Ratio0.740.93
Treynor Ratio11.2513.24

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

The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) has a Mean Return of 1.04 with a Treynor Ratio of 13.24 and a R-squared of 88.88. Its Alpha is -0.7 while VYM’s Sharpe Ratio is 0.93. Furthermore, the fund has a Standard Deviation of 12.69 and a Beta of 0.88.

XLF’s Mean Return is 0.17 points higher than that of VYM and its R-squared is 15.62 points lower. With a Standard Deviation of 18.86, XLF is slightly more volatile than VYM. The Alpha and Beta of XLF are 3.33 points higher and 0.27 points higher than VYM’s Alpha and Beta.

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Performance

Annual Returns

XLF vs. VYM - Annual Returns

YearXLFVYM
2020-1.68%1.14%
201931.88%24.2%
2018-13.09%-5.87%
201722.03%16.42%
201622.55%16.87%
2015-1.6%0.33%
201415.02%13.47%
201335.37%30.26%
201228.53%12.68%
2011-17.16%10.5%
201011.97%14.17%

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 2013 was the strongest year for VYM, returning 30.26% on an annual basis. The poorest year for VYM in the last ten years was 2018, with a yield of -5.87%. Most years the Vanguard High Dividend Yield Index Fund ETF Shares has given investors modest returns, such as in 2012, 2014, and 2010, when gains were 12.68%, 13.47%, and 14.17% respectively.

Portfolio Growth

XLF vs. VYM - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
XLF$10,000$30,78212.17%
VYM$10,000$33,91412.20%

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 VYM, the end total would have been $33,914. This equates to a $23,914 profit over 11 years and a compound annual growth rate (CAGR) of 12.20%.

XLF’s CAGR is 0.03 percentage points lower than that of VYM and as a result, would have yielded $3,132 less on a $10,000 investment. Thus, XLF performed worse than VYM by 0.03% annually.


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