Skip to content

XLK vs. VMBS: What’s The Difference?

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

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

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

TIP: Keep track of all your investments with Personal Capital. I use this amazing tool to aggregate all investments in one place and make sure I'm on track to financial freedom. Oh, and did I mention it's free? Try it out here (link to Personal Capital).

Summary

XLKVMBS
NameTechnology Select Sector SPDR FundVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategoryTechnologyIntermediate Government
IssuerSPDR State Street Global AdvisorsVanguard
AUM42.3B16.61B
Avg. Return20.02%2.89%
Div. Yield0.73%1.23%
Expense Ratio0.12%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 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%.

XLK’s dividend yield is 0.50% lower than that of VMBS (0.73% vs. 1.23%). Also, XLK yielded on average 17.13% more per year over the past decade (20.02% vs. 2.89%). The expense ratio of XLK is 0.07 percentage points higher than VMBS’s (0.12% vs. 0.05%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

Fund Composition

Holdings

XLK - Holdings

XLK HoldingsWeight
Apple Inc21.45%
Microsoft Corp20.37%
NVIDIA Corp4.98%
Visa Inc Class A3.95%
PayPal Holdings Inc3.42%
Mastercard Inc A3.19%
Adobe Inc2.8%
Salesforce.com Inc2.26%
Intel Corp2.26%
Cisco Systems Inc2.23%

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%.

VMBS - Holdings

VMBS Bond SectorsWeight
AAA100.01%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%
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.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Risk Analysis

XLKVMBS
Mean Return1.70.21
R-squared73.5665.78
Std. Deviation15.582.02
Alpha10.430.37
Beta0.950.54
Sharpe Ratio1.270.94
Treynor Ratio21.443.47

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

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

XLK’s Mean Return is 1.49 points higher than that of VMBS and its R-squared is 7.78 points higher. With a Standard Deviation of 15.58, XLK is slightly more volatile than VMBS. The Alpha and Beta of XLK are 10.06 points higher and 0.41 points higher than VMBS’s Alpha and Beta.

FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!

Performance

Annual Returns

XLK vs. VMBS - Annual Returns

YearXLKVMBS
202043.67%3.77%
201949.97%6.17%
2018-1.56%0.87%
201734.27%2.37%
201614.81%1.43%
20155.62%1.43%
201417.75%5.81%
201325.98%-1.28%
201215.47%2.47%
20112.69%5.89%
201011.6%5.24%

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 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

XLK vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
XLK$10,000$60,74420.02%
VMBS$10,000$13,2652.89%

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 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%.

XLK’s CAGR is 17.13 percentage points higher than that of VMBS and as a result, would have yielded $47,479 more on a $10,000 investment. Thus, XLK outperformed VMBS by 17.13% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!

2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.

5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply

Your email address will not be published.