AGG vs. XLC: What’s The Difference?

The iShares Core U.S. Aggregate Bond ETF (AGG) and the Communication Services Select Sector SPDR Fund (XLC) are both among the Top 100 ETFs. AGG is a iShares Intermediate-Term Bond fund and XLC is a SPDR State Street Global Advisors Communications fund. So, what’s the difference between AGG and XLC? And which fund is better?

The expense ratio of AGG is 0.08 percentage points lower than XLC’s (0.04% vs. 0.12%). AGG is mostly comprised of AAA bonds while XLC has a high exposure to the communication services sector. Overall, AGG has provided lower returns than XLC over the past ten years.

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

Summary

AGG XLC
Name iShares Core U.S. Aggregate Bond ETF Communication Services Select Sector SPDR Fund
Category Intermediate-Term Bond Communications
Issuer iShares SPDR State Street Global Advisors
AUM 88.8B 14.09B
Avg. Return 4.04% 29.04%
Div. Yield 1.95% 0.62%
Expense Ratio 0.04% 0.12%

The iShares Core U.S. Aggregate Bond ETF (AGG) is a Intermediate-Term Bond fund that is issued by iShares. It currently has 88.8B total assets under management and has yielded an average annual return of 4.04% over the past 10 years. The fund has a dividend yield of 1.95% with an expense ratio of 0.04%.

The Communication Services Select Sector SPDR Fund (XLC) is a Communications fund that is issued by SPDR State Street Global Advisors. It currently has 14.09B total assets under management and has yielded an average annual return of 29.04% over the past 10 years. The fund has a dividend yield of 0.62% with an expense ratio of 0.12%.

AGG’s dividend yield is 1.33% higher than that of XLC (1.95% vs. 0.62%). Also, AGG yielded on average 25.00% less per year over the past decade (4.04% vs. 29.04%). The expense ratio of AGG is 0.08 percentage points lower than XLC’s (0.04% vs. 0.12%).

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Fund Composition

Holdings

AGG - Holdings

AGG Bond Sectors Weight
AAA 68.92%
BBB 15.38%
A 11.16%
AA 2.92%
Others 1.63%
Below B 0.0%
B 0.0%
BB 0.0%
US Government 0.0%

AGG’s Top Bond Sectors are ratings of AAA, BBB, A, AA, and Others at 68.92%, 15.38%, 11.16%, 2.92%, and 1.63%. The fund is less weighted towards Below B (0.0%), B (0.0%), and BB (0.0%) rated bonds.

XLC - Holdings

XLC Holdings Weight
Facebook Inc A 23.75%
Alphabet Inc A 11.49%
Alphabet Inc Class C 11.16%
Netflix Inc 4.78%
Charter Communications Inc A 4.65%
Comcast Corp Class A 4.44%
T-Mobile US Inc 4.41%
The Walt Disney Co 4.39%
AT&T Inc 4.35%
Verizon Communications Inc 4.33%

XLC’s Top Holdings are Facebook Inc A, Alphabet Inc A, Alphabet Inc Class C, Netflix Inc, and Charter Communications Inc A at 23.75%, 11.49%, 11.16%, 4.78%, and 4.65%.

Comcast Corp Class A (4.44%), T-Mobile US Inc (4.41%), and The Walt Disney Co (4.39%) have a slightly smaller but still significant weight. AT&T Inc and Verizon Communications Inc are also represented in the XLC’s holdings at 4.35% and 4.33%.

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Risk Analysis

AGG XLC
Mean Return 0.28 0
R-squared 99.96 0
Std. Deviation 3.03 0
Alpha -0.08 0
Beta 1.01 0
Sharpe Ratio 0.9 0
Treynor Ratio 2.7 0

The iShares Core U.S. Aggregate Bond ETF (AGG) has a Treynor Ratio of 2.7 with a Mean Return of 0.28 and a R-squared of 99.96. Its Alpha is -0.08 while AGG’s Beta is 1.01. Furthermore, the fund has a Standard Deviation of 3.03 and a Sharpe Ratio of 0.9.

The Communication Services Select Sector SPDR Fund (XLC) has a Treynor Ratio of 0 with a Standard Deviation of 0 and a Sharpe Ratio of 0. Its Mean Return is 0 while XLC’s Beta is 0. Furthermore, the fund has a Alpha of 0 and a R-squared of 0.

AGG’s Mean Return is 0.28 points higher than that of XLC and its R-squared is 99.96 points higher. With a Standard Deviation of 3.03, AGG is slightly more volatile than XLC. The Alpha and Beta of AGG are 0.08 points lower and 1.01 points higher than XLC’s Alpha and Beta.

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Performance

Annual Returns

AGG vs. XLC - Annual Returns

Year AGG XLC
2020 7.42% 26.85%
2019 8.68% 31.22%
2018 -0.05% 0.0%
2017 3.53% 0.0%
2016 2.56% 0.0%
2015 0.48% 0.0%
2014 6.04% 0.0%
2013 -2.15% 0.0%
2012 4.04% 0.0%
2011 7.58% 0.0%
2010 6.3% 0.0%

AGG had its best year in 2019 with an annual return of 8.68%. AGG’s worst year over the past decade yielded -2.15% and occurred in 2013. In most years the iShares Core U.S. Aggregate Bond ETF provided moderate returns such as in 2017, 2012, and 2014 where annual returns amounted to 3.53%, 4.04%, and 6.04% respectively.

The year 2019 was the strongest year for XLC, returning 31.22% on an annual basis. The poorest year for XLC in the last ten years was 2018, with a yield of 0.0%. Most years the Communication Services Select Sector SPDR Fund has given investors modest returns, such as in 2014, 2013, and 2012, when gains were 0.0%, 0.0%, and 0.0% respectively.

Portfolio Growth

AGG vs. XLC - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $11,674 4.04%
XLC $10,000 $16,645 29.04%

A $10,000 investment in AGG would have resulted in a final balance of $11,674. This is a profit of $1,674 over 2 years and amounts to a compound annual growth rate (CAGR) of 4.04%.

With a $10,000 investment in XLC, the end total would have been $16,645. This equates to a $6,645 profit over 2 years and a compound annual growth rate (CAGR) of 29.04%.

AGG’s CAGR is 25.00 percentage points lower than that of XLC and as a result, would have yielded $4,971 less on a $10,000 investment. Thus, AGG performed worse than XLC by 25.00% annually.


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