XLI vs. VMBS: What’s The Difference?

The Industrial Select Sector SPDR Fund (XLI) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. XLI is a SPDR State Street Global Advisors Industrials fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between XLI and VMBS? And which fund is better?

The expense ratio of XLI is 0.07 percentage points higher than VMBS’s (0.12% vs. 0.05%). XLI also has a high exposure to the industrials sector while VMBS is mostly comprised of AAA bonds. Overall, XLI has provided higher returns than VMBS over the past 10 years.

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

Summary

XLI VMBS
Name Industrial Select Sector SPDR Fund Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Industrials Intermediate Government
Issuer SPDR State Street Global Advisors Vanguard
AUM 19.33B 16.61B
Avg. Return 14.44% 2.89%
Div. Yield 1.25% 1.23%
Expense Ratio 0.12% 0.05%

The Industrial Select Sector SPDR Fund (XLI) is a Industrials fund that is issued by SPDR State Street Global Advisors. It currently has 19.33B total assets under management and has yielded an average annual return of 14.44% over the past 10 years. The fund has a dividend yield of 1.25% with an expense ratio of 0.12%.

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.

XLI’s dividend yield is 0.02% higher than that of VMBS (1.25% vs. 1.23%). Also, XLI yielded on average 11.55% more per year over the past decade (14.44% vs. 2.89%). The expense ratio of XLI is 0.07 percentage points higher than VMBS’s (0.12% vs. 0.05%).

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Fund Composition

Holdings

XLI - Holdings

XLI Holdings Weight
Honeywell International Inc 4.9%
United Parcel Service Inc Class B 4.84%
Union Pacific Corp 4.7%
Boeing Co 4.24%
Raytheon Technologies Corp 4.16%
Caterpillar Inc 3.84%
General Electric Co 3.8%
3M Co 3.7%
Deere & Co 3.54%
Lockheed Martin Corp 2.98%

XLI’s Top Holdings are Honeywell International Inc, United Parcel Service Inc Class B, Union Pacific Corp, Boeing Co, and Raytheon Technologies Corp at 4.9%, 4.84%, 4.7%, 4.24%, and 4.16%.

Caterpillar Inc (3.84%), General Electric Co (3.8%), and 3M Co (3.7%) have a slightly smaller but still significant weight. Deere & Co and Lockheed Martin Corp are also represented in the XLI’s holdings at 3.54% and 2.98%.

VMBS - Holdings

VMBS Bond Sectors Weight
AAA 100.01%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.01%

VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

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Risk Analysis

XLI VMBS
Mean Return 1.14 0.21
R-squared 78.97 65.78
Std. Deviation 17.13 2.02
Alpha 2.38 0.37
Beta 1.08 0.54
Sharpe Ratio 0.76 0.94
Treynor Ratio 11.34 3.47

The Industrial Select Sector SPDR Fund (XLI) has a Mean Return of 1.14 with a R-squared of 78.97 and a Alpha of 2.38. Its Standard Deviation is 17.13 while XLI’s Sharpe Ratio is 0.76. Furthermore, the fund has a Treynor Ratio of 11.34 and a Beta of 1.08.

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Alpha of 0.37 with a Treynor Ratio of 3.47 and a Mean Return of 0.21. Its R-squared is 65.78 while VMBS’s Beta is 0.54. Furthermore, the fund has a Standard Deviation of 2.02 and a Sharpe Ratio of 0.94.

XLI’s Mean Return is 0.93 points higher than that of VMBS and its R-squared is 13.19 points higher. With a Standard Deviation of 17.13, XLI is slightly more volatile than VMBS. The Alpha and Beta of XLI are 2.01 points higher and 0.54 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

XLI vs. VMBS - Annual Returns

Year XLI VMBS
2020 11.0% 3.77%
2019 29.11% 6.17%
2018 -13.1% 0.87%
2017 23.85% 2.37%
2016 19.93% 1.43%
2015 -4.27% 1.43%
2014 10.44% 5.81%
2013 40.44% -1.28%
2012 14.86% 2.47%
2011 -1.01% 5.89%
2010 27.62% 5.24%

XLI had its best year in 2013 with an annual return of 40.44%. XLI’s worst year over the past decade yielded -13.1% and occurred in 2018. In most years the Industrial Select Sector SPDR Fund provided moderate returns such as in 2020, 2012, and 2016 where annual returns amounted to 11.0%, 14.86%, and 19.93% respectively.

The year 2019 was the strongest year for VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.

Portfolio Growth

XLI vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLI $10,000 $31,228 14.44%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in XLI would have resulted in a final balance of $31,228. This is a profit of $21,228 over 10 years and amounts to a compound annual growth rate (CAGR) of 14.44%.

With a $10,000 investment in VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.

XLI’s CAGR is 11.55 percentage points higher than that of VMBS and as a result, would have yielded $17,963 more on a $10,000 investment. Thus, XLI outperformed VMBS by 11.55% annually.


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