EEM vs. XLC: What’s The Difference?

The iShares MSCI Emerging Markets ETF (EEM) and the Communication Services Select Sector SPDR Fund (XLC) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and XLC is a SPDR State Street Global Advisors Communications fund. So, what’s the difference between EEM and XLC? And which fund is better?

The expense ratio of EEM is 0.56 percentage points higher than XLC’s (0.68% vs. 0.12%). EEM also has a higher exposure to the technology sector and a higher standard deviation. Overall, EEM has provided lower returns than XLC over the past ten years.

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

Summary

EEM XLC
Name iShares MSCI Emerging Markets ETF Communication Services Select Sector SPDR Fund
Category Diversified Emerging Mkts Communications
Issuer iShares SPDR State Street Global Advisors
AUM 30.33B 14.09B
Avg. Return 5.47% 29.04%
Div. Yield 1.48% 0.62%
Expense Ratio 0.68% 0.12%

The iShares MSCI Emerging Markets ETF (EEM) is a Diversified Emerging Mkts fund that is issued by iShares. It currently has 30.33B total assets under management and has yielded an average annual return of 5.47% over the past 10 years. The fund has a dividend yield of 1.48% with an expense ratio of 0.68%.

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%.

EEM’s dividend yield is 0.86% higher than that of XLC (1.48% vs. 0.62%). Also, EEM yielded on average 23.56% less per year over the past decade (5.47% vs. 29.04%). The expense ratio of EEM is 0.56 percentage points higher than XLC’s (0.68% vs. 0.12%).

Fund Composition

Industry Exposure

EEM vs. XLC - Industry Exposure

EEM XLC
Technology 21.36% 0.0%
Industrials 4.61% 0.0%
Energy 5.17% 0.0%
Communication Services 11.76% 100.0%
Utilities 1.99% 0.0%
Healthcare 5.06% 0.0%
Consumer Defensive 5.45% 0.0%
Real Estate 1.98% 0.0%
Financial Services 18.39% 0.0%
Consumer Cyclical 15.16% 0.0%
Basic Materials 9.07% 0.0%

The iShares MSCI Emerging Markets ETF (EEM) has the most exposure to the Technology sector at 21.36%. This is followed by Financial Services and Consumer Cyclical at 18.39% and 15.16% respectively. Utilities (1.99%), Industrials (4.61%), and Healthcare (5.06%) only make up 11.66% of the fund’s total assets.

EEM’s mid-section with moderate exposure is comprised of Energy, Consumer Defensive, Basic Materials, Communication Services, and Consumer Cyclical stocks at 5.17%, 5.45%, 9.07%, 11.76%, and 15.16%.

The Communication Services Select Sector SPDR Fund (XLC) has the most exposure to the Communication Services sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Financial Services (0.0%), and Real Estate (0.0%) only make up 0.00% of the fund’s total assets.

XLC’s mid-section with moderate exposure is comprised of Consumer Defensive, Healthcare, Utilities, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

EEM is 21.36% more exposed to the Technology sector than XLC (21.36% vs 0.0%). EEM’s exposure to Financial Services and Consumer Cyclical stocks is 18.39% higher and 15.16% higher respectively (18.39% vs. 0.0% and 15.16% vs. 0.0%). In total, Utilities, Industrials, and Healthcare also make up 11.66% more of the fund’s holdings compared to XLC (11.66% vs. 0.00%).

Holdings

EEM - Holdings

EEM Holdings Weight
Taiwan Semiconductor Manufacturing Co Ltd 6.36%
Alibaba Group Holding Ltd Ordinary Shares 4.58%
Tencent Holdings Ltd 4.41%
Samsung Electronics Co Ltd 4.05%
Meituan 1.24%
Vale SA 1.04%
Naspers Ltd Class N 1.04%
Reliance Industries Ltd Shs Dematerialised 0.97%
Infosys Ltd 0.92%
China Construction Bank Corp Class H 0.83%

EEM’s Top Holdings are Taiwan Semiconductor Manufacturing Co Ltd, Alibaba Group Holding Ltd Ordinary Shares, Tencent Holdings Ltd, Samsung Electronics Co Ltd, and Meituan at 6.36%, 4.58%, 4.41%, 4.05%, and 1.24%.

Vale SA (1.04%), Naspers Ltd Class N (1.04%), and Reliance Industries Ltd Shs Dematerialised (0.97%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the EEM’s holdings at 0.92% and 0.83%.

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%.

Risk Analysis

EEM XLC
Mean Return 0.38 0
R-squared 83.5 0
Std. Deviation 17.79 0
Alpha -2.33 0
Beta 1.08 0
Sharpe Ratio 0.22 0
Treynor Ratio 2.22 0

The iShares MSCI Emerging Markets ETF (EEM) has a Beta of 1.08 with a Sharpe Ratio of 0.22 and a R-squared of 83.5. Its Mean Return is 0.38 while EEM’s Treynor Ratio is 2.22. Furthermore, the fund has a Alpha of -2.33 and a Standard Deviation of 17.79.

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

EEM’s Mean Return is 0.38 points higher than that of XLC and its R-squared is 83.50 points higher. With a Standard Deviation of 17.79, EEM is slightly more volatile than XLC. The Alpha and Beta of EEM are 2.33 points lower and 1.08 points higher than XLC’s Alpha and Beta.

Performance

Annual Returns

EEM vs. XLC - Annual Returns

Year EEM XLC
2020 17.56% 26.85%
2019 17.67% 31.22%
2018 -14.98% 0.0%
2017 36.42% 0.0%
2016 10.51% 0.0%
2015 -15.41% 0.0%
2014 -2.82% 0.0%
2013 -3.14% 0.0%
2012 17.32% 0.0%
2011 -18.87% 0.0%
2010 15.93% 0.0%

EEM had its best year in 2017 with an annual return of 36.42%. EEM’s worst year over the past decade yielded -18.87% and occurred in 2011. In most years the iShares MSCI Emerging Markets ETF provided moderate returns such as in 2014, 2016, and 2010 where annual returns amounted to -2.82%, 10.51%, and 15.93% 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

EEM vs. XLC - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EEM $10,000 $13,833 5.47%
XLC $10,000 $16,645 29.04%

A $10,000 investment in EEM would have resulted in a final balance of $13,833. This is a profit of $3,833 over 2 years and amounts to a compound annual growth rate (CAGR) of 5.47%.

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%.

EEM’s CAGR is 23.56 percentage points lower than that of XLC and as a result, would have yielded $2,812 less on a $10,000 investment. Thus, EEM performed worse than XLC by 23.56% annually.


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