HERE<\/b><\/a><\/h5>\nThe battle for the top spot year-to-date has been very close with just 8\/100 of one percent separating the top two performers.\u00a0 Communications Services (<\/span>XLC<\/b>) at 28.09% has a slight edge over Utilities (<\/span>XLU<\/b>) at 28.01%.\u00a0 Finance (<\/span>XLV)<\/b> is in third place, with less than a 2.00% differential.\u00a0 Two other sectors are also up more than 20% this year, Technology (<\/span>XLK<\/b>) and Industrials (<\/span>XLI<\/b>).\u00a0 The worst two performing sectors year to-date\u00a0 are still handily beating inflation, one of the primary reasons savers are urged to invest in equities. Health care (<\/span>XLV<\/b>) is up 10% and Energy (<\/span>XLE<\/b>) is up 7.3% while inflation is on track to finish 2024 well below 4%.\u00a0 Sector selection aside, it has been a great year through October 31 to have been invested in US equities, especially large caps in the S&P 500.\u00a0\u00a0<\/span><\/p>\nLooking at longer time frames, <\/span>XLK <\/b>is the top performer for the five-year period with a compound annualized rate of nearly 24% while Real Estate (<\/span>XLRE<\/b>) has the worst 5-year return, about 3.5% per annum.\u00a0 On a three-year basis with 1\/3 of the weight given to the sharp downturn in 2022, it\u2019s a different story altogether.\u00a0 <\/span>XLE <\/b>fared best in that particular interval with a 19% annualized return in contrast to <\/span>XLRE <\/b>with a virtually flat return (0%) for the period.<\/span><\/p>\nOne observation distinguishing 2024 thus far is that 10 months into a go-go year for stocks, Utilities (<\/span>XLU<\/b>) is the second top performer and virtually tied for the top performer this year.\u00a0 This is highly unusual for the sector ETFs in the equity market.\u00a0 The handful of other years in the past 50 years that Utilities were even among the top five sectors in price gain, it was because market returns were in the down-to-flat category.\u00a0 This year, utilities have been behaving like growth stocks with investors buying them for growth, not just dividend yield.\u00a0 In contrast the other two sector ETFs with higher-than- yields, <\/span>XLE<\/b> and <\/span>XLRE,<\/b> are 10<\/span>th<\/span> and 8<\/span>th<\/span> in year-to-date return respectively.\u00a0 In terms of 5-year weekly Beta, the ETF\u2019s price volatility with respect to benchmark index movements, Utilities is lowest at 0.52 while Consumer Staples (<\/span>XLP<\/b>) is second lowest at 0.57. The highest market-relative volatility sector ETF is <\/span>XLE <\/b>with a Beta of 1.36<\/span><\/p>\nThe other major provider of cap-weighted Sector ETFs is the Vanguard Group.\u00a0 There are several features that consistently distinguish Vanguard\u2019s sector ETFs from Select Sector SPDRs:<\/span><\/p>\n\n- Greater Breadth –\u00a0 Breadth is a function of the number of stocks in an ETF. For example, Select SPDR Technology (<\/span>XLK<\/b>) contains 71 stocks while Vanguard\u2019s Information Technology ETF (<\/span>VGT<\/b>) has more than four times that many at 318.\u00a0 \u00a0<\/span><\/li>\n
- Lower Concentration \u2013 Concentration is generally measured by the percentage of total portfolio weight in an ETF\u2019s top 10 holdings.\u00a0 Here the distinctions between XLK<\/b> and VGT <\/b>are much more subtle.\u00a0 The top 10 holdings of XLK <\/b>account for nearly 63% of its weight as opposed to 58% for VGT.<\/b><\/li>\n
- Average Daily Dollar Trading Volume \u2013 The eleven Select Sector SPDR ETFs are clearly the market\u2019s products of choice when it comes to frequent traders such as hedge funds and tactical asset allocators.\u00a0 The average ETF in this family trades more than $100 million per day as opposed to less than $2 million per day for Vanguard\u2019s family.\u00a0 For example, the average daily dollar volume for XLV<\/b> is $7 billion.\u00a0 For the Vanguard Health Care ETF (VHT<\/b>), the analogous number is $264 million or $0.26 billion.<\/li>\n
- Assets Under Management \u2013 Select Sector SPDRs leads Vanguard in Assets Under Management by almost a 2-to-1 margin, $293 billion as opposed to $149 billion.\u00a0 However, that margin was more than three-to-one heading into 2020, so Vanguard has gained on a market share basis. Taken together with the trading volume analysis above, I conclude that Vanguard has been successful in luring sticky institutional assets into their ETFs at an impressive rate, but that frequent traders and tactical allocators strongly prefer the narrower SPDR family. In addition to greater volume generally making for tighter spreads, the narrower the overall breadth of the ETF, the easier and less expensive it is to hedge exposures using the underlying stocks.\u00a0 This helps make the entire market for that ETF more efficient.<\/li>\n
- Average Price Per Share \u2013 Since both families have average prices greater than $100 per share, I would consider both products to be positioned more to institutions than to retail investors.\u00a0 However, Vanguard\u2019s average price per share of $246 is nearly double that of SPDRs at $109.\u00a0 Traditionally, ETFs positioned to be sold to retail investors are launched at $50 per share or less, then have price splits if they get over $200 per share.\u00a0 Institutions historically prefer trading fewer shares at larger amounts per share.\u00a0 The historical underlying reasons for this no longer really apply in the US market, but the old rules of thumb still seem to apply in ETF product development.<\/li>\n
- Expense Ratios \u2013 They are nearly identical.\u00a0 Interestingly enough, one might expect Vanguard to be the low cost provider as befitting their longtime popular reputation.\u00a0 It turns out that while they are always competitive in pricing their ETFs, they are not always the least expensive.\u00a0 Vanguard\u2019s 10 basis point fee for their sector ETFs is one basis point higher than SSgA\u2019 s Select Sector SPDRs. \u00a0 For 99% of those reading this, that really isn\u2019t a major point of differentiation. I just note it because it is somewhat counterintuitive.<\/li>\n<\/ol>\n
When it comes to bottom line performance using the same categories as before, did any sectors perform significantly better using the Vanguard ETFs than the Select Sector SPDRs from SSgA? Let\u2019s take a look.<\/span><\/p>\n