EFA vs. XLI: What’s The Difference?

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

The expense ratio of EFA is 0.20 percentage points higher than XLI’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 lower returns than XLI over the past ten years.

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

Summary

EFA XLI
Name iShares MSCI EAFE ETF Industrial Select Sector SPDR Fund
Category Foreign Large Blend Industrials
Issuer iShares SPDR State Street Global Advisors
AUM 56.77B 19.33B
Avg. Return 6.47% 14.44%
Div. Yield 2.28% 1.25%
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 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%.

EFA’s dividend yield is 1.03% higher than that of XLI (2.28% vs. 1.25%). Also, EFA yielded on average 7.97% less per year over the past decade (6.47% vs. 14.44%). The expense ratio of EFA is 0.20 percentage points higher than XLI’s (0.32% vs. 0.12%).

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Fund Composition

Industry Exposure

EFA vs. XLI - Industry Exposure

EFA XLI
Technology 9.68% 1.82%
Industrials 15.01% 97.49%
Energy 3.51% 0.0%
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% 0.69%
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 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%.

EFA is 16.88% more exposed to the Financial Services sector than XLI (16.88% vs 0.0%). EFA’s exposure to Industrials and Healthcare stocks is 82.48% lower and 12.80% higher respectively (15.01% vs. 97.49% and 12.8% vs. 0.0%). In total, Utilities, Energy, and Communication Services also make up 12.54% more of the fund’s holdings compared to XLI (12.54% vs. 0.00%).

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%.

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%.

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Risk Analysis

EFA XLI
Mean Return 0.57 1.14
R-squared 96.78 78.97
Std. Deviation 15.01 17.13
Alpha 0.47 2.38
Beta 0.98 1.08
Sharpe Ratio 0.41 0.76
Treynor Ratio 5.33 11.34

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

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

EFA’s Mean Return is 0.57 points lower than that of XLI and its R-squared is 17.81 points higher. With a Standard Deviation of 15.01, EFA is slightly less volatile than XLI. The Alpha and Beta of EFA are 1.91 points lower and 0.10 points lower than XLI’s Alpha and Beta.

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Performance

Annual Returns

EFA vs. XLI - Annual Returns

Year EFA XLI
2020 7.92% 11.0%
2019 21.94% 29.11%
2018 -13.83% -13.1%
2017 24.94% 23.85%
2016 0.96% 19.93%
2015 -0.9% -4.27%
2014 -5.04% 10.44%
2013 22.62% 40.44%
2012 17.22% 14.86%
2011 -12.18% -1.01%
2010 7.52% 27.62%

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 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

EFA vs. XLI - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EFA $10,000 $18,269 6.47%
XLI $10,000 $39,853 14.44%

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 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%.

EFA’s CAGR is 7.97 percentage points lower than that of XLI and as a result, would have yielded $21,584 less on a $10,000 investment. Thus, EFA performed worse than XLI by 7.97% annually.


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