XLV vs. VTIP: What’s The Difference?

The Health Care Select Sector SPDR Fund (XLV) and the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) are both among the Top 100 ETFs. XLV is a SPDR State Street Global Advisors Health fund and VTIP is a Vanguard Inflation-Protected Bond fund. So, what’s the difference between XLV and VTIP? And which fund is better?

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

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

Summary

XLV VTIP
Name Health Care Select Sector SPDR Fund Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares
Category Health Inflation-Protected Bond
Issuer SPDR State Street Global Advisors Vanguard
AUM 27.88B 50.67B
Avg. Return 15.02% 1.79%
Div. Yield 1.4% 1.35%
Expense Ratio 0.12% 0.05%

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 Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) is a Inflation-Protected Bond fund that is issued by Vanguard. It currently has 50.67B total assets under management and has yielded an average annual return of 1.79% over the past 10 years. The fund has a dividend yield of 1.35% with an expense ratio of 0.05%.

XLV’s dividend yield is 0.05% higher than that of VTIP (1.4% vs. 1.35%). Also, XLV yielded on average 13.23% more per year over the past decade (15.02% vs. 1.79%). The expense ratio of XLV is 0.07 percentage points higher than VTIP’s (0.12% vs. 0.05%).

Fund Composition

Holdings

XLV - Holdings

XLV Holdings Weight
Johnson & Johnson 9.19%
UnitedHealth Group Inc 8.01%
Pfizer Inc 4.64%
Abbott Laboratories 4.36%
AbbVie Inc 4.21%
Thermo Fisher Scientific Inc 4.2%
Merck & Co Inc 4.17%
Eli Lilly and Co 3.87%
Danaher Corp 3.61%
Medtronic PLC 3.54%

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%.

VTIP - Holdings

VTIP Bond Sectors Weight
AAA 99.87%
Others 0.13%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

VTIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.87%, 0.13%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

Risk Analysis

XLV VTIP
Mean Return 1.27 0
R-squared 58.19 0
Std. Deviation 12.94 0
Alpha 7.75 0
Beta 0.7 0
Sharpe Ratio 1.13 0
Treynor Ratio 21.1 0

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 Alpha is 7.75 while XLV’s R-squared is 58.19. Furthermore, the fund has a Beta of 0.7 and a Standard Deviation of 12.94.

The Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) has a Beta of 0 with a Mean Return of 0 and a Sharpe Ratio of 0. Its Standard Deviation is 0 while VTIP’s Alpha is 0. Furthermore, the fund has a R-squared of 0 and a Treynor Ratio of 0.

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

Performance

Annual Returns

XLV vs. VTIP - Annual Returns

Year XLV VTIP
2020 13.33% 4.97%
2019 20.63% 4.83%
2018 6.3% 0.54%
2017 21.7% 0.82%
2016 -2.83% 2.71%
2015 6.82% -0.15%
2014 25.17% -1.17%
2013 41.24% -1.55%
2012 17.56% 0.0%
2011 12.44% 0.0%
2010 2.91% 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 2020 was the strongest year for VTIP, returning 4.97% on an annual basis. The poorest year for VTIP in the last ten years was 2013, with a yield of -1.55%. Most years the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares has given investors modest returns, such as in 2011, 2010, and 2018, when gains were 0.0%, 0.0%, and 0.54% respectively.

Portfolio Growth

XLV vs. VTIP - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLV $10,000 $22,977 15.02%
VTIP $10,000 $11,305 1.79%

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 VTIP, the end total would have been $11,305. This equates to a $1,305 profit over 7 years and a compound annual growth rate (CAGR) of 1.79%.

XLV’s CAGR is 13.23 percentage points higher than that of VTIP and as a result, would have yielded $11,672 more on a $10,000 investment. Thus, XLV outperformed VTIP by 13.23% annually.


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