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.
|Name||Technology Select Sector SPDR Fund||Vanguard Mortgage-Backed Securities Index Fund ETF Shares|
|Issuer||SPDR State Street Global Advisors||Vanguard|
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%).
|Visa Inc Class A||3.95%|
|PayPal Holdings Inc||3.42%|
|Mastercard Inc A||3.19%|
|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%.
|VMBS Bond Sectors||Weight|
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.
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.
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.
|Fund||Initial Balance||Final Balance||CAGR|
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.
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