EFA vs. XLE: What’s The Difference?

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

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

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

Summary

EFA XLE
Name iShares MSCI EAFE ETF Energy Select Sector SPDR Fund
Category Foreign Large Blend Equity Energy
Issuer iShares SPDR State Street Global Advisors
AUM 56.77B 25.55B
Avg. Return 6.47% 1.28%
Div. Yield 2.28% 3.92%
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 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%.

EFA’s dividend yield is 1.64% lower than that of XLE (2.28% vs. 3.92%). Also, EFA yielded on average 5.19% more per year over the past decade (6.47% vs. 1.28%). The expense ratio of EFA is 0.20 percentage points higher than XLE’s (0.32% vs. 0.12%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

Fund Composition

Industry Exposure

EFA vs. XLE - Industry Exposure

EFA XLE
Technology 9.68% 0.0%
Industrials 15.01% 0.0%
Energy 3.51% 100.0%
Communication Services 5.68% 0.0%
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 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%.

EFA is 16.88% more exposed to the Financial Services sector than XLE (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 XLE (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%.

XLE - Holdings

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%.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Risk Analysis

EFA XLE
Mean Return 0.57 0.32
R-squared 96.78 61.84
Std. Deviation 15.01 27.52
Alpha 0.47 -11.98
Beta 0.98 1.54
Sharpe Ratio 0.41 0.12
Treynor Ratio 5.33 -0.4

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

The Energy Select Sector SPDR Fund (XLE) has a R-squared of 61.84 with a Standard Deviation of 27.52 and a Sharpe Ratio of 0.12. Its Mean Return is 0.32 while XLE’s Beta is 1.54. Furthermore, the fund has a Treynor Ratio of -0.4 and a Alpha of -11.98.

EFA’s Mean Return is 0.25 points higher than that of XLE and its R-squared is 34.94 points higher. With a Standard Deviation of 15.01, EFA is slightly less volatile than XLE. The Alpha and Beta of EFA are 12.45 points higher and 0.56 points lower than XLE’s Alpha and Beta.

BTW: Uncorrelated crypto assets such as Bitcoin can serve as a hedge and mitigate risk. I've allocated around 5% of my portfolio to crypto assets through Coinbase - the simplest and cheapest broker I've found! Click here to read more (link to Coinbase).

Performance

Annual Returns

EFA vs. XLE - Annual Returns

Year EFA XLE
2020 7.92% -32.56%
2019 21.94% 11.87%
2018 -13.83% -18.1%
2017 24.94% -1.01%
2016 0.96% 27.95%
2015 -0.9% -21.47%
2014 -5.04% -8.61%
2013 22.62% 26.16%
2012 17.22% 5.17%
2011 -12.18% 2.98%
2010 7.52% 21.7%

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 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

EFA vs. XLE - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EFA $10,000 $18,269 6.47%
XLE $10,000 $9,339 1.28%

A $10,000 investment in EFA would have resulted in a final balance of $18,269. This is a profit of $8,269 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.47%.

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%.

EFA’s CAGR is 5.19 percentage points higher than that of XLE and as a result, would have yielded $8,930 more on a $10,000 investment. Thus, EFA outperformed XLE by 5.19% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Coinbase. I've started allocating a small amount of assets to the growing crypto space and Coinbase has just been a breeze to use. Once you register, make sure to also open an Coinbase Pro account to buy crypto at the lowest fees on the market (just 0.1%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply