The Health Care Select Sector SPDR Fund (XLV) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. XLV is a SPDR State Street Global Advisors Health fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between XLV and VMBS? And which fund is better?
The expense ratio of XLV is 0.07 percentage points higher than VMBS’s (0.12% vs. 0.05%). XLV also has a high exposure to the healthcare sector while VMBS is mostly comprised of AAA bonds. Overall, XLV has provided higher returns than VMBS over the past ten years.
In this article, we’ll compare XLV vs. VMBS. We’ll look at portfolio growth and performance, as well as at their annual returns and industry exposure. Moreover, I’ll also discuss XLV’s and VMBS’s risk metrics, holdings, and fund composition and examine how these affect their overall returns.
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|Name||Health Care Select Sector SPDR Fund||Vanguard Mortgage-Backed Securities Index Fund ETF Shares|
|Issuer||SPDR State Street Global Advisors||Vanguard|
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 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%.
XLV’s dividend yield is 0.17% higher than that of VMBS (1.4% vs. 1.23%). Also, XLV yielded on average 12.13% more per year over the past decade (15.02% vs. 2.89%). The expense ratio of XLV is 0.07 percentage points higher than VMBS’s (0.12% vs. 0.05%).
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|Johnson & Johnson||9.19%|
|UnitedHealth Group Inc||8.01%|
|Thermo Fisher Scientific Inc||4.2%|
|Merck & Co Inc||4.17%|
|Eli Lilly and Co||3.87%|
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%.
|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 Health Care Select Sector SPDR Fund (XLV) has a Sharpe Ratio of 1.13 with a Mean Return of 1.27 and a Beta of 0.7. Its Treynor Ratio is 21.1 while XLV’s R-squared is 58.19. Furthermore, the fund has a Standard Deviation of 12.94 and a Alpha of 7.75.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Standard Deviation of 2.02 with a Mean Return of 0.21 and a Alpha of 0.37. Its Treynor Ratio is 3.47 while VMBS’s Sharpe Ratio is 0.94. Furthermore, the fund has a Beta of 0.54 and a R-squared of 65.78.
XLV’s Mean Return is 1.06 points higher than that of VMBS and its R-squared is 7.59 points lower. With a Standard Deviation of 12.94, XLV is slightly more volatile than VMBS. The Alpha and Beta of XLV are 7.38 points higher and 0.16 points higher than VMBS’s Alpha and Beta.
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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 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 XLV would have resulted in a final balance of $42,899. This is a profit of $32,899 over 10 years and amounts to a compound annual growth rate (CAGR) of 15.02%.
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%.
XLV’s CAGR is 12.13 percentage points higher than that of VMBS and as a result, would have yielded $29,634 more on a $10,000 investment. Thus, XLV outperformed VMBS by 12.13% annually.
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