AGG vs. XLE: What’s The Difference?

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

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

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

Summary

AGG XLE
Name iShares Core U.S. Aggregate Bond ETF Energy Select Sector SPDR Fund
Category Intermediate-Term Bond Equity Energy
Issuer iShares SPDR State Street Global Advisors
AUM 88.8B 25.55B
Avg. Return 4.04% 1.28%
Div. Yield 1.95% 3.92%
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 Energy Select Sector SPDR Fund (XLE) is a Equity Energy fund that is issued by SPDR State Street Global Advisors. It currently has 25.55B total assets under management and has yielded an average annual return of 1.28% over the past 10 years. The fund has a dividend yield of 3.92% with an expense ratio of 0.12%.

AGG’s dividend yield is 1.97% lower than that of XLE (1.95% vs. 3.92%). Also, AGG yielded on average 2.76% more per year over the past decade (4.04% vs. 1.28%). The expense ratio of AGG is 0.08 percentage points lower than XLE’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.

XLE - Holdings

XLE Holdings Weight
Exxon Mobil Corp 23.7%
Chevron Corp 20.03%
ConocoPhillips 4.64%
EOG Resources Inc 4.46%
Schlumberger Ltd 4.43%
Marathon Petroleum Corp 4.17%
Pioneer Natural Resources Co 4.08%
Phillips 66 4.07%
Kinder Morgan Inc Class P 3.85%
Williams Companies Inc 3.5%

XLE’s Top Holdings are Exxon Mobil Corp, Chevron Corp, ConocoPhillips, EOG Resources Inc, and Schlumberger Ltd at 23.7%, 20.03%, 4.64%, 4.46%, and 4.43%.

Marathon Petroleum Corp (4.17%), Pioneer Natural Resources Co (4.08%), and Phillips 66 (4.07%) have a slightly smaller but still significant weight. Kinder Morgan Inc Class P and Williams Companies Inc are also represented in the XLE’s holdings at 3.85% and 3.5%.

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Risk Analysis

AGG XLE
Mean Return 0.28 0.32
R-squared 99.96 61.84
Std. Deviation 3.03 27.52
Alpha -0.08 -11.98
Beta 1.01 1.54
Sharpe Ratio 0.9 0.12
Treynor Ratio 2.7 -0.4

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

The Energy Select Sector SPDR Fund (XLE) has a Treynor Ratio of -0.4 with a Sharpe Ratio of 0.12 and a Mean Return of 0.32. Its Standard Deviation is 27.52 while XLE’s Alpha is -11.98. Furthermore, the fund has a Beta of 1.54 and a R-squared of 61.84.

AGG’s Mean Return is 0.04 points lower than that of XLE and its R-squared is 38.12 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than XLE. The Alpha and Beta of AGG are 11.90 points higher and 0.53 points lower than XLE’s Alpha and Beta.

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Performance

Annual Returns

AGG vs. XLE - Annual Returns

Year AGG XLE
2020 7.42% -32.56%
2019 8.68% 11.87%
2018 -0.05% -18.1%
2017 3.53% -1.01%
2016 2.56% 27.95%
2015 0.48% -21.47%
2014 6.04% -8.61%
2013 -2.15% 26.16%
2012 4.04% 5.17%
2011 7.58% 2.98%
2010 6.3% 21.7%

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 2016 was the strongest year for XLE, returning 27.95% on an annual basis. The poorest year for XLE in the last ten years was 2020, with a yield of -32.56%. Most years the Energy Select Sector SPDR Fund has given investors modest returns, such as in 2017, 2011, and 2012, when gains were -1.01%, 2.98%, and 5.17% respectively.

Portfolio Growth

AGG vs. XLE - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $15,368 4.04%
XLE $10,000 $9,339 1.28%

A $10,000 investment in AGG would have resulted in a final balance of $15,368. This is a profit of $5,368 over 11 years and amounts to a compound annual growth rate (CAGR) of 4.04%.

With a $10,000 investment in XLE, the end total would have been $9,339. This equates to a $-661 profit over 11 years and a compound annual growth rate (CAGR) of 1.28%.

AGG’s CAGR is 2.76 percentage points higher than that of XLE and as a result, would have yielded $6,029 more on a $10,000 investment. Thus, AGG outperformed XLE by 2.76% annually.


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