EFA vs. XLC: What’s The Difference?

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

The expense ratio of EFA is 0.20 percentage points higher than XLC’s (0.32% vs. 0.12%). EFA also has a higher exposure to the financial services sector and a higher standard deviation. Overall, EFA has provided lower returns than XLC over the past ten years.

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

Summary

EFA XLC
Name iShares MSCI EAFE ETF Communication Services Select Sector SPDR Fund
Category Foreign Large Blend Communications
Issuer iShares SPDR State Street Global Advisors
AUM 56.77B 14.09B
Avg. Return 6.47% 29.04%
Div. Yield 2.28% 0.62%
Expense Ratio 0.32% 0.12%

The iShares MSCI EAFE ETF (EFA) is a Foreign Large Blend fund that is issued by iShares. It currently has 56.77B total assets under management and has yielded an average annual return of 6.47% over the past 10 years. The fund has a dividend yield of 2.28% with an expense ratio of 0.32%.

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%.

EFA’s dividend yield is 1.66% higher than that of XLC (2.28% vs. 0.62%). Also, EFA yielded on average 22.57% less per year over the past decade (6.47% vs. 29.04%). The expense ratio of EFA is 0.20 percentage points higher than XLC’s (0.32% vs. 0.12%).

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Fund Composition

Industry Exposure

EFA vs. XLC - Industry Exposure

EFA XLC
Technology 9.68% 0.0%
Industrials 15.01% 0.0%
Energy 3.51% 0.0%
Communication Services 5.68% 100.0%
Utilities 3.35% 0.0%
Healthcare 12.8% 0.0%
Consumer Defensive 10.56% 0.0%
Real Estate 3.01% 0.0%
Financial Services 16.88% 0.0%
Consumer Cyclical 11.62% 0.0%
Basic Materials 7.91% 0.0%

The iShares MSCI EAFE ETF (EFA) has the most exposure to the Financial Services sector at 16.88%. This is followed by Industrials and Healthcare at 15.01% and 12.8% respectively. Utilities (3.35%), Energy (3.51%), and Communication Services (5.68%) only make up 12.54% of the fund’s total assets.

EFA’s mid-section with moderate exposure is comprised of Basic Materials, Technology, Consumer Defensive, Consumer Cyclical, and Healthcare stocks at 7.91%, 9.68%, 10.56%, 11.62%, and 12.8%.

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%.

EFA is 16.88% more exposed to the Financial Services sector than XLC (16.88% vs 0.0%). EFA’s exposure to Industrials and Healthcare stocks is 15.01% higher and 12.80% higher respectively (15.01% vs. 0.0% and 12.8% vs. 0.0%). In total, Utilities, Energy, and Communication Services also make up 87.46% less of the fund’s holdings compared to XLC (12.54% vs. 100.00%).

Holdings

EFA - Holdings

EFA Holdings Weight
Nestle SA 2.11%
ASML Holding NV 1.69%
Roche Holding AG 1.55%
LVMH Moet Hennessy Louis Vuitton SE 1.28%
Novartis AG 1.19%
Toyota Motor Corp 1.09%
AstraZeneca PLC 0.92%
Unilever PLC 0.9%
AIA Group Ltd 0.88%
SAP SE 0.86%

EFA’s Top Holdings are Nestle SA, ASML Holding NV, Roche Holding AG, LVMH Moet Hennessy Louis Vuitton SE, and Novartis AG at 2.11%, 1.69%, 1.55%, 1.28%, and 1.19%.

Toyota Motor Corp (1.09%), AstraZeneca PLC (0.92%), and Unilever PLC (0.9%) have a slightly smaller but still significant weight. AIA Group Ltd and SAP SE are also represented in the EFA’s holdings at 0.88% and 0.86%.

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%.

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Risk Analysis

EFA XLC
Mean Return 0.57 0
R-squared 96.78 0
Std. Deviation 15.01 0
Alpha 0.47 0
Beta 0.98 0
Sharpe Ratio 0.41 0
Treynor Ratio 5.33 0

The iShares MSCI EAFE ETF (EFA) has a Treynor Ratio of 5.33 with a Standard Deviation of 15.01 and a R-squared of 96.78. Its Sharpe Ratio is 0.41 while EFA’s Alpha is 0.47. Furthermore, the fund has a Beta of 0.98 and a Mean Return of 0.57.

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

EFA’s Mean Return is 0.57 points higher than that of XLC and its R-squared is 96.78 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than XLC. The Alpha and Beta of EFA are 0.47 points higher and 0.98 points higher than XLC’s Alpha and Beta.

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Performance

Annual Returns

EFA vs. XLC - Annual Returns

Year EFA XLC
2020 7.92% 26.85%
2019 21.94% 31.22%
2018 -13.83% 0.0%
2017 24.94% 0.0%
2016 0.96% 0.0%
2015 -0.9% 0.0%
2014 -5.04% 0.0%
2013 22.62% 0.0%
2012 17.22% 0.0%
2011 -12.18% 0.0%
2010 7.52% 0.0%

EFA had its best year in 2017 with an annual return of 24.94%. EFA’s worst year over the past decade yielded -13.83% and occurred in 2018. In most years the iShares MSCI EAFE ETF provided moderate returns such as in 2016, 2010, and 2020 where annual returns amounted to 0.96%, 7.52%, and 7.92% 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

EFA vs. XLC - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EFA $10,000 $13,159 6.47%
XLC $10,000 $16,645 29.04%

A $10,000 investment in EFA would have resulted in a final balance of $13,159. This is a profit of $3,159 over 2 years and amounts to a compound annual growth rate (CAGR) of 6.47%.

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%.

EFA’s CAGR is 22.57 percentage points lower than that of XLC and as a result, would have yielded $3,486 less on a $10,000 investment. Thus, EFA performed worse than XLC by 22.57% annually.


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