EEM vs. XLI: What’s The Difference?

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

The expense ratio of EEM is 0.56 percentage points higher than XLI’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 XLI over the past ten years.

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

Summary

EEM XLI
Name iShares MSCI Emerging Markets ETF Industrial Select Sector SPDR Fund
Category Diversified Emerging Mkts Industrials
Issuer iShares SPDR State Street Global Advisors
AUM 30.33B 19.33B
Avg. Return 5.47% 14.44%
Div. Yield 1.48% 1.25%
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 Industrial Select Sector SPDR Fund (XLI) is a Industrials fund that is issued by SPDR State Street Global Advisors. It currently has 19.33B total assets under management and has yielded an average annual return of 14.44% over the past 10 years. The fund has a dividend yield of 1.25% with an expense ratio of 0.12%.

EEM’s dividend yield is 0.23% higher than that of XLI (1.48% vs. 1.25%). Also, EEM yielded on average 8.97% less per year over the past decade (5.47% vs. 14.44%). The expense ratio of EEM is 0.56 percentage points higher than XLI’s (0.68% vs. 0.12%).

Fund Composition

Industry Exposure

EEM vs. XLI - Industry Exposure

EEM XLI
Technology 21.36% 1.82%
Industrials 4.61% 97.49%
Energy 5.17% 0.0%
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% 0.69%
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 Industrial Select Sector SPDR Fund (XLI) has the most exposure to the Industrials sector at 97.49%. This is followed by Technology and Consumer Cyclical at 1.82% and 0.69% respectively. Financial Services (0.0%), Real Estate (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

XLI’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Consumer Cyclical stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.69%.

EEM is 19.54% more exposed to the Technology sector than XLI (21.36% vs 1.82%). EEM’s exposure to Financial Services and Consumer Cyclical stocks is 18.39% higher and 14.47% higher respectively (18.39% vs. 0.0% and 15.16% vs. 0.69%). In total, Utilities, Industrials, and Healthcare also make up 85.83% less of the fund’s holdings compared to XLI (11.66% vs. 97.49%).

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%.

XLI - Holdings

XLI Holdings Weight
Honeywell International Inc 4.9%
United Parcel Service Inc Class B 4.84%
Union Pacific Corp 4.7%
Boeing Co 4.24%
Raytheon Technologies Corp 4.16%
Caterpillar Inc 3.84%
General Electric Co 3.8%
3M Co 3.7%
Deere & Co 3.54%
Lockheed Martin Corp 2.98%

XLI’s Top Holdings are Honeywell International Inc, United Parcel Service Inc Class B, Union Pacific Corp, Boeing Co, and Raytheon Technologies Corp at 4.9%, 4.84%, 4.7%, 4.24%, and 4.16%.

Caterpillar Inc (3.84%), General Electric Co (3.8%), and 3M Co (3.7%) have a slightly smaller but still significant weight. Deere & Co and Lockheed Martin Corp are also represented in the XLI’s holdings at 3.54% and 2.98%.

Risk Analysis

EEM XLI
Mean Return 0.38 1.14
R-squared 83.5 78.97
Std. Deviation 17.79 17.13
Alpha -2.33 2.38
Beta 1.08 1.08
Sharpe Ratio 0.22 0.76
Treynor Ratio 2.22 11.34

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

The Industrial Select Sector SPDR Fund (XLI) has a Standard Deviation of 17.13 with a Mean Return of 1.14 and a Treynor Ratio of 11.34. Its Sharpe Ratio is 0.76 while XLI’s Alpha is 2.38. Furthermore, the fund has a Beta of 1.08 and a R-squared of 78.97.

EEM’s Mean Return is 0.76 points lower than that of XLI and its R-squared is 4.53 points higher. With a Standard Deviation of 17.79, EEM is slightly more volatile than XLI. The Alpha and Beta of EEM are 4.71 points lower and 0.00 points lower than XLI’s Alpha and Beta.

Performance

Annual Returns

EEM vs. XLI - Annual Returns

Year EEM XLI
2020 17.56% 11.0%
2019 17.67% 29.11%
2018 -14.98% -13.1%
2017 36.42% 23.85%
2016 10.51% 19.93%
2015 -15.41% -4.27%
2014 -2.82% 10.44%
2013 -3.14% 40.44%
2012 17.32% 14.86%
2011 -18.87% -1.01%
2010 15.93% 27.62%

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 2013 was the strongest year for XLI, returning 40.44% on an annual basis. The poorest year for XLI in the last ten years was 2018, with a yield of -13.1%. Most years the Industrial Select Sector SPDR Fund has given investors modest returns, such as in 2020, 2012, and 2016, when gains were 11.0%, 14.86%, and 19.93% respectively.

Portfolio Growth

EEM vs. XLI - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EEM $10,000 $15,578 5.47%
XLI $10,000 $39,853 14.44%

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 XLI, the end total would have been $39,853. This equates to a $29,853 profit over 11 years and a compound annual growth rate (CAGR) of 14.44%.

EEM’s CAGR is 8.97 percentage points lower than that of XLI and as a result, would have yielded $24,275 less on a $10,000 investment. Thus, EEM performed worse than XLI by 8.97% annually.


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