EEM vs. XLY: What’s The Difference?

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

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

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

Summary

EEM XLY
Name iShares MSCI Emerging Markets ETF Consumer Discretionary Select Sector SPDR Fund
Category Diversified Emerging Mkts Consumer Cyclical
Issuer iShares SPDR State Street Global Advisors
AUM 30.33B 20.21B
Avg. Return 5.47% 18.86%
Div. Yield 1.48% 0.63%
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 Consumer Discretionary Select Sector SPDR Fund (XLY) is a Consumer Cyclical fund that is issued by SPDR State Street Global Advisors. It currently has 20.21B total assets under management and has yielded an average annual return of 18.86% over the past 10 years. The fund has a dividend yield of 0.63% with an expense ratio of 0.12%.

EEM’s dividend yield is 0.85% higher than that of XLY (1.48% vs. 0.63%). Also, EEM yielded on average 13.39% less per year over the past decade (5.47% vs. 18.86%). The expense ratio of EEM is 0.56 percentage points higher than XLY’s (0.68% vs. 0.12%).

Fund Composition

Industry Exposure

EEM vs. XLY - Industry Exposure

EEM XLY
Technology 21.36% 0.57%
Industrials 4.61% 0.0%
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% 5.34%
Real Estate 1.98% 0.0%
Financial Services 18.39% 0.0%
Consumer Cyclical 15.16% 94.1%
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 Consumer Discretionary Select Sector SPDR Fund (XLY) has the most exposure to the Consumer Cyclical sector at 94.1%. This is followed by Consumer Defensive and Technology at 5.34% and 0.57% respectively. Financial Services (0.0%), Real Estate (0.0%), and Healthcare (0.0%) only make up 0.00% of the fund’s total assets.

XLY’s mid-section with moderate exposure is comprised of Utilities, Communication Services, Energy, Industrials, and Technology stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.57%.

EEM is 20.79% more exposed to the Technology sector than XLY (21.36% vs 0.57%). EEM’s exposure to Financial Services and Consumer Cyclical stocks is 18.39% higher and 78.94% lower respectively (18.39% vs. 0.0% and 15.16% vs. 94.1%). In total, Utilities, Industrials, and Healthcare also make up 11.66% more of the fund’s holdings compared to XLY (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%.

XLY - Holdings

XLY Holdings Weight
Amazon.com Inc 22.9%
Tesla Inc 13.5%
The Home Depot Inc 8.74%
McDonald’s Corp 4.5%
Nike Inc B 4.45%
Lowe’s Companies Inc 3.58%
Starbucks Corp 3.44%
Target Corp 3.12%
Booking Holdings Inc 2.35%
TJX Companies Inc 2.12%

XLY’s Top Holdings are Amazon.com Inc, Tesla Inc, The Home Depot Inc, McDonald’s Corp, and Nike Inc B at 22.9%, 13.5%, 8.74%, 4.5%, and 4.45%.

Lowe’s Companies Inc (3.58%), Starbucks Corp (3.44%), and Target Corp (3.12%) have a slightly smaller but still significant weight. Booking Holdings Inc and TJX Companies Inc are also represented in the XLY’s holdings at 2.35% and 2.12%.

Risk Analysis

EEM XLY
Mean Return 0.38 1.47
R-squared 83.5 80.84
Std. Deviation 17.79 15.97
Alpha -2.33 6.96
Beta 1.08 1.02
Sharpe Ratio 0.22 1.06
Treynor Ratio 2.22 16.69

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

The Consumer Discretionary Select Sector SPDR Fund (XLY) has a Beta of 1.02 with a Standard Deviation of 15.97 and a Treynor Ratio of 16.69. Its Sharpe Ratio is 1.06 while XLY’s Alpha is 6.96. Furthermore, the fund has a R-squared of 80.84 and a Mean Return of 1.47.

EEM’s Mean Return is 1.09 points lower than that of XLY and its R-squared is 2.66 points higher. With a Standard Deviation of 17.79, EEM is slightly more volatile than XLY. The Alpha and Beta of EEM are 9.29 points lower and 0.06 points higher than XLY’s Alpha and Beta.

Performance

Annual Returns

EEM vs. XLY - Annual Returns

Year EEM XLY
2020 17.56% 29.66%
2019 17.67% 28.43%
2018 -14.98% 1.66%
2017 36.42% 22.77%
2016 10.51% 5.87%
2015 -15.41% 9.93%
2014 -2.82% 9.49%
2013 -3.14% 42.74%
2012 17.32% 23.6%
2011 -18.87% 5.98%
2010 15.93% 27.36%

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 XLY, returning 42.74% on an annual basis. The poorest year for XLY in the last ten years was 2018, with a yield of 1.66%. Most years the Consumer Discretionary Select Sector SPDR Fund has given investors modest returns, such as in 2015, 2017, and 2012, when gains were 9.93%, 22.77%, and 23.6% respectively.

Portfolio Growth

EEM vs. XLY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EEM $10,000 $15,578 5.47%
XLY $10,000 $63,066 18.86%

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 XLY, the end total would have been $63,066. This equates to a $53,066 profit over 11 years and a compound annual growth rate (CAGR) of 18.86%.

EEM’s CAGR is 13.39 percentage points lower than that of XLY and as a result, would have yielded $47,488 less on a $10,000 investment. Thus, EEM performed worse than XLY by 13.39% annually.


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