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XLV vs. QUAL: What’s The Difference?

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

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

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

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Summary

XLVQUAL
NameHealth Care Select Sector SPDR FundiShares MSCI USA Quality Factor ETF
CategoryHealthLarge Blend
IssuerSPDR State Street Global AdvisorsiShares
AUM27.88B23.93B
Avg. Return15.02%13.42%
Div. Yield1.4%1.29%
Expense Ratio0.12%0.15%

The Health Care Select Sector SPDR Fund (XLV) is a Health fund that is issued by SPDR State Street Global Advisors. It currently has 27.88B total assets under management and has yielded an average annual return of 15.02% over the past 10 years. The fund has a dividend yield of 1.4% 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%.

XLV’s dividend yield is 0.11% higher than that of QUAL (1.4% vs. 1.29%). Also, XLV yielded on average 1.60% more per year over the past decade (15.02% vs. 13.42%). The expense ratio of XLV is 0.03 percentage points lower than QUAL’s (0.12% vs. 0.15%).

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Fund Composition

Industry Exposure

XLV vs. QUAL - Industry Exposure

XLVQUAL
Technology0.0%22.52%
Industrials0.0%9.22%
Energy0.0%2.24%
Communication Services0.0%11.44%
Utilities0.0%2.41%
Healthcare100.0%13.22%
Consumer Defensive0.0%8.57%
Real Estate0.0%2.72%
Financial Services0.0%15.87%
Consumer Cyclical0.0%9.43%
Basic Materials0.0%2.35%

The Health Care Select Sector SPDR Fund (XLV) has the most exposure to the Healthcare sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Financial Services (0.0%), and Real Estate (0.0%) only make up 0.00% of the fund’s total assets.

XLV’s mid-section with moderate exposure is comprised of Consumer Defensive, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

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%.

XLV is 86.78% more exposed to the Healthcare sector than QUAL (100.0% vs 13.22%). XLV’s exposure to Technology and Industrials stocks is 22.52% lower and 9.22% lower respectively (0.0% vs. 22.52% and 0.0% vs. 9.22%). In total, Consumer Cyclical, Financial Services, and Real Estate also make up 28.02% less of the fund’s holdings compared to QUAL (0.00% vs. 28.02%).

Holdings

XLV - Holdings

XLV HoldingsWeight
Johnson & Johnson9.19%
UnitedHealth Group Inc8.01%
Pfizer Inc4.64%
Abbott Laboratories4.36%
AbbVie Inc4.21%
Thermo Fisher Scientific Inc4.2%
Merck & Co Inc4.17%
Eli Lilly and Co3.87%
Danaher Corp3.61%
Medtronic PLC3.54%

XLV’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and AbbVie Inc at 9.19%, 8.01%, 4.64%, 4.36%, and 4.21%.

Thermo Fisher Scientific Inc (4.2%), Merck & Co Inc (4.17%), and Eli Lilly and Co (3.87%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the XLV’s holdings at 3.61% and 3.54%.

QUAL - Holdings

QUAL HoldingsWeight
Facebook Inc Class A4.77%
Nike Inc Class B4.05%
Microsoft Corp3.54%
Apple Inc3.52%
Johnson & Johnson2.99%
BlackRock Inc2.87%
Target Corp2.8%
Mastercard Inc Class A2.72%
NVIDIA Corp2.71%
Alphabet Inc Class A2.49%

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%.

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Risk Analysis

XLVQUAL
Mean Return1.270
R-squared58.190
Std. Deviation12.940
Alpha7.750
Beta0.70
Sharpe Ratio1.130
Treynor Ratio21.10

The Health Care Select Sector SPDR Fund (XLV) has a Mean Return of 1.27 with a Treynor Ratio of 21.1 and a Sharpe Ratio of 1.13. Its Standard Deviation is 12.94 while XLV’s R-squared is 58.19. Furthermore, the fund has a Beta of 0.7 and a Alpha of 7.75.

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

XLV’s Mean Return is 1.27 points higher than that of QUAL and its R-squared is 58.19 points higher. With a Standard Deviation of 12.94, XLV is slightly more volatile than QUAL. The Alpha and Beta of XLV are 7.75 points higher and 0.70 points higher than QUAL’s Alpha and Beta.

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Performance

Annual Returns

XLV vs. QUAL - Annual Returns

YearXLVQUAL
202013.33%16.96%
201920.63%34.14%
20186.3%-5.77%
201721.7%22.26%
2016-2.83%9.18%
20156.82%5.56%
201425.17%11.62%
201341.24%0.0%
201217.56%0.0%
201112.44%0.0%
20102.91%0.0%

XLV had its best year in 2013 with an annual return of 41.24%. XLV’s worst year over the past decade yielded -2.83% and occurred in 2016. In most years the Health Care Select Sector SPDR Fund provided moderate returns such as in 2011, 2020, and 2012 where annual returns amounted to 12.44%, 13.33%, and 17.56% 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

XLV vs. QUAL - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
XLV$10,000$22,97715.02%
QUAL$10,000$23,25113.42%

A $10,000 investment in XLV would have resulted in a final balance of $22,977. This is a profit of $12,977 over 7 years and amounts to a compound annual growth rate (CAGR) of 15.02%.

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%.

XLV’s CAGR is 1.60 percentage points higher than that of QUAL and as a result, would have yielded $274 less on a $10,000 investment. Thus, XLV outperformed QUAL by 1.60% annually.


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