XLK vs. VCSH: What’s The Difference?

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

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

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

Summary

XLK VCSH
Name Technology Select Sector SPDR Fund Vanguard Short-Term Corporate Bond Index Fund ETF Shares
Category Technology Short-Term Bond
Issuer SPDR State Street Global Advisors Vanguard
AUM 42.3B 47.88B
Avg. Return 20.02% 3.12%
Div. Yield 0.73% 1.89%
Expense Ratio 0.12% 0.05%

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 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%.

XLK’s dividend yield is 1.16% lower than that of VCSH (0.73% vs. 1.89%). Also, XLK yielded on average 16.91% more per year over the past decade (20.02% vs. 3.12%). The expense ratio of XLK is 0.07 percentage points higher than VCSH’s (0.12% vs. 0.05%).

Fund Composition

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%.

VCSH - Holdings

VCSH Bond Sectors Weight
BBB 47.49%
A 43.06%
AA 8.45%
AAA 0.95%
Below B 0.03%
Others 0.02%
B 0.0%
BB 0.0%
US Government 0.0%

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.

Risk Analysis

XLK VCSH
Mean Return 1.7 0.24
R-squared 73.56 37.53
Std. Deviation 15.58 2.34
Alpha 10.43 0.93
Beta 0.95 0.48
Sharpe Ratio 1.27 0.97
Treynor Ratio 21.44 4.75

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

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

XLK’s Mean Return is 1.46 points higher than that of VCSH and its R-squared is 36.03 points higher. With a Standard Deviation of 15.58, XLK is slightly more volatile than VCSH. The Alpha and Beta of XLK are 9.50 points higher and 0.47 points higher than VCSH’s Alpha and Beta.

Performance

Annual Returns

XLK vs. VCSH - Annual Returns

Year XLK VCSH
2020 43.67% 5.08%
2019 49.97% 6.85%
2018 -1.56% 0.91%
2017 34.27% 2.45%
2016 14.81% 2.63%
2015 5.62% 1.25%
2014 17.75% 1.96%
2013 25.98% 1.37%
2012 15.47% 5.74%
2011 2.69% 2.94%
2010 11.6% 5.51%

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 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

XLK vs. VCSH - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLK $10,000 $60,744 20.02%
VCSH $10,000 $13,569 3.12%

A $10,000 investment in XLK would have resulted in a final balance of $60,744. This is a profit of $50,744 over 10 years and amounts to a compound annual growth rate (CAGR) of 20.02%.

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%.

XLK’s CAGR is 16.91 percentage points higher than that of VCSH and as a result, would have yielded $47,175 more on a $10,000 investment. Thus, XLK outperformed VCSH by 16.91% annually.


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