XLY vs. VMBS: What’s The Difference?

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

The expense ratio of XLY is 0.07 percentage points higher than VMBS’s (0.12% vs. 0.05%). XLY also has a high exposure to the consumer cyclical sector while VMBS is mostly comprised of AAA bonds. Overall, XLY has provided higher returns than VMBS over the past 10 years.

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

Summary

XLY VMBS
Name Consumer Discretionary Select Sector SPDR Fund Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Consumer Cyclical Intermediate Government
Issuer SPDR State Street Global Advisors Vanguard
AUM 20.21B 16.61B
Avg. Return 18.86% 2.89%
Div. Yield 0.63% 1.23%
Expense Ratio 0.12% 0.05%

The Consumer Discretionary Select Sector SPDR Fund (XLY) is a Consumer Cyclical fund that is issued by SPDR State Street Global Advisors. It currently has 20.21B total assets under management and has yielded an average annual return of 18.86% over the past 10 years. The fund has a dividend yield of 0.63% 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%.

XLY’s dividend yield is 0.60% lower than that of VMBS (0.63% vs. 1.23%). Also, XLY yielded on average 15.97% more per year over the past decade (18.86% vs. 2.89%). The expense ratio of XLY is 0.07 percentage points higher than VMBS’s (0.12% vs. 0.05%).

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Fund Composition

Holdings

XLY - Holdings

XLY Holdings Weight
Amazon.com Inc 22.9%
Tesla Inc 13.5%
The Home Depot Inc 8.74%
McDonald’s Corp 4.5%
Nike Inc B 4.45%
Lowe’s Companies Inc 3.58%
Starbucks Corp 3.44%
Target Corp 3.12%
Booking Holdings Inc 2.35%
TJX Companies Inc 2.12%

XLY’s Top Holdings are Amazon.com Inc, Tesla Inc, The Home Depot Inc, McDonald’s Corp, and Nike Inc B at 22.9%, 13.5%, 8.74%, 4.5%, and 4.45%.

Lowe’s Companies Inc (3.58%), Starbucks Corp (3.44%), and Target Corp (3.12%) have a slightly smaller but still significant weight. Booking Holdings Inc and TJX Companies Inc are also represented in the XLY’s holdings at 2.35% and 2.12%.

VMBS - Holdings

VMBS Bond Sectors Weight
AAA 100.01%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%
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.

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Risk Analysis

XLY VMBS
Mean Return 1.47 0.21
R-squared 80.84 65.78
Std. Deviation 15.97 2.02
Alpha 6.96 0.37
Beta 1.02 0.54
Sharpe Ratio 1.06 0.94
Treynor Ratio 16.69 3.47

The Consumer Discretionary Select Sector SPDR Fund (XLY) has a Mean Return of 1.47 with a Standard Deviation of 15.97 and a R-squared of 80.84. Its Treynor Ratio is 16.69 while XLY’s Alpha is 6.96. Furthermore, the fund has a Beta of 1.02 and a Sharpe Ratio of 1.06.

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 R-squared of 65.78. Its Alpha is 0.37 while VMBS’s Mean Return is 0.21. Furthermore, the fund has a Beta of 0.54 and a Standard Deviation of 2.02.

XLY’s Mean Return is 1.26 points higher than that of VMBS and its R-squared is 15.06 points higher. With a Standard Deviation of 15.97, XLY is slightly more volatile than VMBS. The Alpha and Beta of XLY are 6.59 points higher and 0.48 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

XLY vs. VMBS - Annual Returns

Year XLY VMBS
2020 29.66% 3.77%
2019 28.43% 6.17%
2018 1.66% 0.87%
2017 22.77% 2.37%
2016 5.87% 1.43%
2015 9.93% 1.43%
2014 9.49% 5.81%
2013 42.74% -1.28%
2012 23.6% 2.47%
2011 5.98% 5.89%
2010 27.36% 5.24%

XLY had its best year in 2013 with an annual return of 42.74%. XLY’s worst year over the past decade yielded 1.66% and occurred in 2018. In most years the Consumer Discretionary Select Sector SPDR Fund provided moderate returns such as in 2015, 2017, and 2012 where annual returns amounted to 9.93%, 22.77%, and 23.6% 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

XLY vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLY $10,000 $49,518 18.86%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in XLY would have resulted in a final balance of $49,518. This is a profit of $39,518 over 10 years and amounts to a compound annual growth rate (CAGR) of 18.86%.

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%.

XLY’s CAGR is 15.97 percentage points higher than that of VMBS and as a result, would have yielded $36,253 more on a $10,000 investment. Thus, XLY outperformed VMBS by 15.97% annually.


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