XLK vs. QUAL: What’s The Difference?

The Technology Select Sector SPDR Fund (XLK) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. XLK is a SPDR State Street Global Advisors Technology fund and QUAL is a iShares Large Blend fund. So, what’s the difference between XLK and QUAL? And which fund is better?

The expense ratio of XLK is 0.03 percentage points lower than QUAL’s (0.12% vs. 0.15%). XLK also has a higher exposure to the technology sector and a higher standard deviation. Overall, XLK has provided higher returns than QUAL over the past ten years.

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

Summary

XLK QUAL
Name Technology Select Sector SPDR Fund iShares MSCI USA Quality Factor ETF
Category Technology Large Blend
Issuer SPDR State Street Global Advisors iShares
AUM 42.3B 23.93B
Avg. Return 20.02% 13.42%
Div. Yield 0.73% 1.29%
Expense Ratio 0.12% 0.15%

The Technology Select Sector SPDR Fund (XLK) is a Technology fund that is issued by SPDR State Street Global Advisors. It currently has 42.3B total assets under management and has yielded an average annual return of 20.02% over the past 10 years. The fund has a dividend yield of 0.73% with an expense ratio of 0.12%.

The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

XLK’s dividend yield is 0.56% lower than that of QUAL (0.73% vs. 1.29%). Also, XLK yielded on average 6.60% more per year over the past decade (20.02% vs. 13.42%). The expense ratio of XLK is 0.03 percentage points lower than QUAL’s (0.12% vs. 0.15%).

Fund Composition

Industry Exposure

XLK vs. QUAL - Industry Exposure

XLK QUAL
Technology 87.54% 22.52%
Industrials 1.75% 9.22%
Energy 0.0% 2.24%
Communication Services 0.0% 11.44%
Utilities 0.0% 2.41%
Healthcare 0.0% 13.22%
Consumer Defensive 0.0% 8.57%
Real Estate 0.0% 2.72%
Financial Services 10.71% 15.87%
Consumer Cyclical 0.0% 9.43%
Basic Materials 0.0% 2.35%

The Technology Select Sector SPDR Fund (XLK) has the most exposure to the Technology sector at 87.54%. This is followed by Financial Services and Industrials at 10.71% and 1.75% 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.

XLK’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 1.75%.

The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

XLK is 65.02% more exposed to the Technology sector than QUAL (87.54% vs 22.52%). XLK’s exposure to Financial Services and Industrials stocks is 5.16% lower and 7.47% lower respectively (10.71% vs. 15.87% and 1.75% vs. 9.22%). In total, Consumer Cyclical, Real Estate, and Consumer Defensive also make up 20.72% less of the fund’s holdings compared to QUAL (0.00% vs. 20.72%).

Holdings

XLK - Holdings

XLK Holdings Weight
Apple Inc 21.45%
Microsoft Corp 20.37%
NVIDIA Corp 4.98%
Visa Inc Class A 3.95%
PayPal Holdings Inc 3.42%
Mastercard Inc A 3.19%
Adobe Inc 2.8%
Salesforce.com Inc 2.26%
Intel Corp 2.26%
Cisco Systems Inc 2.23%

XLK’s Top Holdings are Apple Inc, Microsoft Corp, NVIDIA Corp, Visa Inc Class A, and PayPal Holdings Inc at 21.45%, 20.37%, 4.98%, 3.95%, and 3.42%.

Mastercard Inc A (3.19%), Adobe Inc (2.8%), and Salesforce.com Inc (2.26%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the XLK’s holdings at 2.26% and 2.23%.

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

Risk Analysis

XLK QUAL
Mean Return 1.7 0
R-squared 73.56 0
Std. Deviation 15.58 0
Alpha 10.43 0
Beta 0.95 0
Sharpe Ratio 1.27 0
Treynor Ratio 21.44 0

The Technology Select Sector SPDR Fund (XLK) has a Treynor Ratio of 21.44 with a Alpha of 10.43 and a Beta of 0.95. Its R-squared is 73.56 while XLK’s Sharpe Ratio is 1.27. Furthermore, the fund has a Standard Deviation of 15.58 and a Mean Return of 1.7.

The iShares MSCI USA Quality Factor ETF (QUAL) has a Standard Deviation of 0 with a Treynor Ratio of 0 and a Mean Return of 0. Its R-squared is 0 while QUAL’s Sharpe Ratio is 0. Furthermore, the fund has a Beta of 0 and a Alpha of 0.

XLK’s Mean Return is 1.70 points higher than that of QUAL and its R-squared is 73.56 points higher. With a Standard Deviation of 15.58, XLK is slightly more volatile than QUAL. The Alpha and Beta of XLK are 10.43 points higher and 0.95 points higher than QUAL’s Alpha and Beta.

Performance

Annual Returns

XLK vs. QUAL - Annual Returns

Year XLK QUAL
2020 43.67% 16.96%
2019 49.97% 34.14%
2018 -1.56% -5.77%
2017 34.27% 22.26%
2016 14.81% 9.18%
2015 5.62% 5.56%
2014 17.75% 11.62%
2013 25.98% 0.0%
2012 15.47% 0.0%
2011 2.69% 0.0%
2010 11.6% 0.0%

XLK had its best year in 2019 with an annual return of 49.97%. XLK’s worst year over the past decade yielded -1.56% and occurred in 2018. In most years the Technology Select Sector SPDR Fund provided moderate returns such as in 2016, 2012, and 2014 where annual returns amounted to 14.81%, 15.47%, and 17.75% respectively.

The year 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

XLK vs. QUAL - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLK $10,000 $40,663 20.02%
QUAL $10,000 $23,251 13.42%

A $10,000 investment in XLK would have resulted in a final balance of $40,663. This is a profit of $30,663 over 7 years and amounts to a compound annual growth rate (CAGR) of 20.02%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

XLK’s CAGR is 6.60 percentage points higher than that of QUAL and as a result, would have yielded $17,412 more on a $10,000 investment. Thus, XLK outperformed QUAL by 6.60% annually.


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