The Vanguard Industrials Index Fund ETF (VIS) and State Street’s The Industrial Select Sector SPDR Fund (XLI) are two of the largest industrial sector ETFs and two of the most popular among individual investors. Many investors compare VIS vs XLI because they are so similar. The funds are quite similar with one important difference.
A quick reminder that this site does NOT provide investment recommendations. Fund comparisons (such as this one) are not conducted to identify the “best” fund (since that will vary from investor to investor based on investor-specific factors). Rather, these fund comparison posts are designed to identify and distinguish between the fund details that matter versus the ones that don’t.
The Short Answer
The primary difference between the funds is that XLI is a large-cap fund, while VIS includes mid-caps and small-caps. Despite this difference, risk and return has been nearly identical and I consider these two funds identical and interchangeable.
The Longer Answer
Historical Performance: VIS vs XLI
XLI was launched back in 1998, while VIS was launched in 2004. Since the VIS’s launch, the two funds have performed incredibly similarly, with an annualized difference of only .03%! The cumulative performance differential over that timeframe is only 2.6%.
Portfolio Exposures: VIS vs XLI
XLI tracks the Industrial Select Sector Index, which is essentially a sub-index of the S&P 500 (which is predominantly composed of large-caps). It has changed over the years, but the index that VIS currently tracks is includes more mid-caps and small-caps (even though it is also predominantly large-caps).
Both VIS and XLI hold essentially 100% stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical geographic exposures.
Market Cap Exposure
As the below data illustrates, XLI primarily holds large-caps, while VIS is a bit more diversified in terms of market cap. Despite this difference, both funds are market-cap weighted and risk/return is overwhelmingly driven by the large-cap exposure.
VIS and XLI are Industrials ETFs and so their holdings are 100% Industrials stocks.
Practical Factors: VIS vs XLI
As ETFs, both XLI and VIS are free to trade on many platforms. Bid-ask spreads for both VIS and XLI are extremely low and volume is sufficient to prevent most individual investors from “moving the market.”
The expense ratio for both XLI and VIS is .10%. At these low levels of expense ratios, small differences in expense ratios does not typically matter anyways. Something to keep in mind if one fund or the other decides to reduce fees.
Tax Efficiency & Capital Gain Distributions
VIS has never made a capital gain distribution and XLI has not made one since 1999. I do not expect either fund to make capital gains distributions moving forward. In my opinion, these two funds are equally tax-efficient.
The one factor that may sway someone towards XLI is if they are managing some type of option strategy, such as covered calls. The options market for XLI is much more active than for VIS. Of course, if someone wants to trade options without triggering tax consequences in another part of their portfolio, perhaps VIS is the better pick for the non-option holding.
Bottom Line: VIS vs XLI
VIS and XLI are identical in nearly every way and I would not spend any time comparing them or trying to decide which is better. I believe investors’ time is better spent evaluating and thinking through more material decisions.