AGG vs. XLK: What’s The Difference?

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

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

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

Summary

AGG XLK
Name iShares Core U.S. Aggregate Bond ETF Technology Select Sector SPDR Fund
Category Intermediate-Term Bond Technology
Issuer iShares SPDR State Street Global Advisors
AUM 88.8B 42.3B
Avg. Return 4.04% 20.02%
Div. Yield 1.95% 0.73%
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 Technology Select Sector SPDR Fund (XLK) is a Technology fund that is issued by SPDR State Street Global Advisors. It currently has 42.3B total assets under management and has yielded an average annual return of 20.02% over the past 10 years. The fund has a dividend yield of 0.73% with an expense ratio of 0.12%.

AGG’s dividend yield is 1.22% higher than that of XLK (1.95% vs. 0.73%). Also, AGG yielded on average 15.99% less per year over the past decade (4.04% vs. 20.02%). The expense ratio of AGG is 0.08 percentage points lower than XLK’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.

XLK - Holdings

XLK Holdings Weight
Apple Inc 21.45%
Microsoft Corp 20.37%
NVIDIA Corp 4.98%
Visa Inc Class A 3.95%
PayPal Holdings Inc 3.42%
Mastercard Inc A 3.19%
Adobe Inc 2.8%
Salesforce.com Inc 2.26%
Intel Corp 2.26%
Cisco Systems Inc 2.23%

XLK’s Top Holdings are Apple Inc, Microsoft Corp, NVIDIA Corp, Visa Inc Class A, and PayPal Holdings Inc at 21.45%, 20.37%, 4.98%, 3.95%, and 3.42%.

Mastercard Inc A (3.19%), Adobe Inc (2.8%), and Salesforce.com Inc (2.26%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the XLK’s holdings at 2.26% and 2.23%.

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Risk Analysis

AGG XLK
Mean Return 0.28 1.7
R-squared 99.96 73.56
Std. Deviation 3.03 15.58
Alpha -0.08 10.43
Beta 1.01 0.95
Sharpe Ratio 0.9 1.27
Treynor Ratio 2.7 21.44

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

The Technology Select Sector SPDR Fund (XLK) has a Standard Deviation of 15.58 with a Alpha of 10.43 and a R-squared of 73.56. Its Treynor Ratio is 21.44 while XLK’s Mean Return is 1.7. Furthermore, the fund has a Sharpe Ratio of 1.27 and a Beta of 0.95.

AGG’s Mean Return is 1.42 points lower than that of XLK and its R-squared is 26.40 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than XLK. The Alpha and Beta of AGG are 10.51 points lower and 0.06 points higher than XLK’s Alpha and Beta.

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Performance

Annual Returns

AGG vs. XLK - Annual Returns

Year AGG XLK
2020 7.42% 43.67%
2019 8.68% 49.97%
2018 -0.05% -1.56%
2017 3.53% 34.27%
2016 2.56% 14.81%
2015 0.48% 5.62%
2014 6.04% 17.75%
2013 -2.15% 25.98%
2012 4.04% 15.47%
2011 7.58% 2.69%
2010 6.3% 11.6%

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 XLK, returning 49.97% on an annual basis. The poorest year for XLK in the last ten years was 2018, with a yield of -1.56%. Most years the Technology Select Sector SPDR Fund has given investors modest returns, such as in 2016, 2012, and 2014, when gains were 14.81%, 15.47%, and 17.75% respectively.

Portfolio Growth

AGG vs. XLK - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $15,368 4.04%
XLK $10,000 $67,790 20.02%

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 XLK, the end total would have been $67,790. This equates to a $57,790 profit over 11 years and a compound annual growth rate (CAGR) of 20.02%.

AGG’s CAGR is 15.99 percentage points lower than that of XLK and as a result, would have yielded $52,422 less on a $10,000 investment. Thus, AGG performed worse than XLK by 15.99% annually.


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