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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.

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Summary

EFAXLE
NameiShares MSCI EAFE ETFEnergy Select Sector SPDR Fund
CategoryForeign Large BlendEquity Energy
IssueriSharesSPDR State Street Global Advisors
AUM56.77B25.55B
Avg. Return6.47%1.28%
Div. Yield2.28%3.92%
Expense Ratio0.32%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%).

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Fund Composition

Industry Exposure

EFA vs. XLE - Industry Exposure

EFAXLE
Technology9.68%0.0%
Industrials15.01%0.0%
Energy3.51%100.0%
Communication Services5.68%0.0%
Utilities3.35%0.0%
Healthcare12.8%0.0%
Consumer Defensive10.56%0.0%
Real Estate3.01%0.0%
Financial Services16.88%0.0%
Consumer Cyclical11.62%0.0%
Basic Materials7.91%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 HoldingsWeight
Nestle SA2.11%
ASML Holding NV1.69%
Roche Holding AG1.55%
LVMH Moet Hennessy Louis Vuitton SE1.28%
Novartis AG1.19%
Toyota Motor Corp1.09%
AstraZeneca PLC0.92%
Unilever PLC0.9%
AIA Group Ltd0.88%
SAP SE0.86%

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 HoldingsWeight
Exxon Mobil Corp23.7%
Chevron Corp20.03%
ConocoPhillips4.64%
EOG Resources Inc4.46%
Schlumberger Ltd4.43%
Marathon Petroleum Corp4.17%
Pioneer Natural Resources Co4.08%
Phillips 664.07%
Kinder Morgan Inc Class P3.85%
Williams Companies Inc3.5%

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%.

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Risk Analysis

EFAXLE
Mean Return0.570.32
R-squared96.7861.84
Std. Deviation15.0127.52
Alpha0.47-11.98
Beta0.981.54
Sharpe Ratio0.410.12
Treynor Ratio5.33-0.4

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.

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Performance

Annual Returns

EFA vs. XLE - Annual Returns

YearEFAXLE
20207.92%-32.56%
201921.94%11.87%
2018-13.83%-18.1%
201724.94%-1.01%
20160.96%27.95%
2015-0.9%-21.47%
2014-5.04%-8.61%
201322.62%26.16%
201217.22%5.17%
2011-12.18%2.98%
20107.52%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

FundInitial BalanceFinal BalanceCAGR
EFA$10,000$18,2696.47%
XLE$10,000$9,3391.28%

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.


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