The iShares MSCI Emerging Markets ETF (EEM) and the Energy Select Sector SPDR Fund (XLE) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and XLE is a SPDR State Street Global Advisors Equity Energy fund. So, what’s the difference between EEM and XLE? And which fund is better?
The expense ratio of EEM is 0.56 percentage points higher than XLE’s (0.68% vs. 0.12%). EEM also has a higher exposure to the technology sector and a lower standard deviation. Overall, EEM has provided higher returns than XLE over the past ten years.
In this article, we’ll compare EEM vs. XLE. We’ll look at industry exposure and fund composition, as well as at their portfolio growth and performance. Moreover, I’ll also discuss EEM’s and XLE’s holdings, annual returns, and risk metrics and examine how these affect their overall returns.
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Summary
| EEM | XLE | |
| Name | iShares MSCI Emerging Markets ETF | Energy Select Sector SPDR Fund |
| Category | Diversified Emerging Mkts | Equity Energy |
| Issuer | iShares | SPDR State Street Global Advisors |
| AUM | 30.33B | 25.55B |
| Avg. Return | 5.47% | 1.28% |
| Div. Yield | 1.48% | 3.92% |
| 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 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%.
EEM’s dividend yield is 2.44% lower than that of XLE (1.48% vs. 3.92%). Also, EEM yielded on average 4.19% more per year over the past decade (5.47% vs. 1.28%). The expense ratio of EEM is 0.56 percentage points higher than XLE’s (0.68% vs. 0.12%).
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Fund Composition
Industry Exposure
| EEM | XLE | |
| Technology | 21.36% | 0.0% |
| Industrials | 4.61% | 0.0% |
| Energy | 5.17% | 100.0% |
| Communication Services | 11.76% | 0.0% |
| 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 Energy Select Sector SPDR Fund (XLE) has the most exposure to the Energy 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.
XLE’s mid-section with moderate exposure is comprised of Consumer Defensive, Healthcare, Utilities, Communication Services, 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 XLE (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 XLE (11.66% vs. 0.00%).
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%.
| 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%.
Risk Analysis
| EEM | XLE | |
| Mean Return | 0.38 | 0.32 |
| R-squared | 83.5 | 61.84 |
| Std. Deviation | 17.79 | 27.52 |
| Alpha | -2.33 | -11.98 |
| Beta | 1.08 | 1.54 |
| Sharpe Ratio | 0.22 | 0.12 |
| Treynor Ratio | 2.22 | -0.4 |
The iShares MSCI Emerging Markets ETF (EEM) has a Beta of 1.08 with a Mean Return of 0.38 and a Alpha of -2.33. Its Standard Deviation is 17.79 while EEM’s Treynor Ratio is 2.22. Furthermore, the fund has a R-squared of 83.5 and a Sharpe Ratio of 0.22.
The Energy Select Sector SPDR Fund (XLE) has a Mean Return of 0.32 with a Standard Deviation of 27.52 and a Treynor Ratio of -0.4. Its Alpha is -11.98 while XLE’s Beta is 1.54. Furthermore, the fund has a R-squared of 61.84 and a Sharpe Ratio of 0.12.
EEM’s Mean Return is 0.06 points higher than that of XLE and its R-squared is 21.66 points higher. With a Standard Deviation of 17.79, EEM is slightly less volatile than XLE. The Alpha and Beta of EEM are 9.65 points higher and 0.46 points lower than XLE’s Alpha and Beta.
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Performance
Annual Returns
| Year | EEM | XLE |
| 2020 | 17.56% | -32.56% |
| 2019 | 17.67% | 11.87% |
| 2018 | -14.98% | -18.1% |
| 2017 | 36.42% | -1.01% |
| 2016 | 10.51% | 27.95% |
| 2015 | -15.41% | -21.47% |
| 2014 | -2.82% | -8.61% |
| 2013 | -3.14% | 26.16% |
| 2012 | 17.32% | 5.17% |
| 2011 | -18.87% | 2.98% |
| 2010 | 15.93% | 21.7% |
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 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
| Fund | Initial Balance | Final Balance | CAGR |
| EEM | $10,000 | $15,578 | 5.47% |
| XLE | $10,000 | $9,339 | 1.28% |
A $10,000 investment in EEM would have resulted in a final balance of $15,578. This is a profit of $5,578 over 11 years and amounts to a compound annual growth rate (CAGR) of 5.47%.
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%.
EEM’s CAGR is 4.19 percentage points higher than that of XLE and as a result, would have yielded $6,239 more on a $10,000 investment. Thus, EEM outperformed XLE by 4.19% annually.
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