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EFA vs. XLK: What’s The Difference?

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

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

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

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Summary

EFAXLK
NameiShares MSCI EAFE ETFTechnology Select Sector SPDR Fund
CategoryForeign Large BlendTechnology
IssueriSharesSPDR State Street Global Advisors
AUM56.77B42.3B
Avg. Return6.47%20.02%
Div. Yield2.28%0.73%
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 Technology Select Sector SPDR Fund (XLK) is a Technology fund that is issued by SPDR State Street Global Advisors. It currently has 42.3B total assets under management and has yielded an average annual return of 20.02% over the past 10 years. The fund has a dividend yield of 0.73% with an expense ratio of 0.12%.

EFA’s dividend yield is 1.55% higher than that of XLK (2.28% vs. 0.73%). Also, EFA yielded on average 13.55% less per year over the past decade (6.47% vs. 20.02%). The expense ratio of EFA is 0.20 percentage points higher than XLK’s (0.32% vs. 0.12%).

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Fund Composition

Industry Exposure

EFA vs. XLK - Industry Exposure

EFAXLK
Technology9.68%87.54%
Industrials15.01%1.75%
Energy3.51%0.0%
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%10.71%
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 Technology Select Sector SPDR Fund (XLK) has the most exposure to the Technology sector at 87.54%. This is followed by Financial Services and Industrials at 10.71% and 1.75% respectively. Consumer Cyclical (0.0%), Real Estate (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

XLK’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 1.75%.

EFA is 6.17% more exposed to the Financial Services sector than XLK (16.88% vs 10.71%). EFA’s exposure to Industrials and Healthcare stocks is 13.26% higher and 12.80% higher respectively (15.01% vs. 1.75% 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 XLK (12.54% vs. 0.00%).

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%.

XLK - Holdings

XLK HoldingsWeight
Apple Inc21.45%
Microsoft Corp20.37%
NVIDIA Corp4.98%
Visa Inc Class A3.95%
PayPal Holdings Inc3.42%
Mastercard Inc A3.19%
Adobe Inc2.8%
Salesforce.com Inc2.26%
Intel Corp2.26%
Cisco Systems Inc2.23%

XLK’s Top Holdings are Apple Inc, Microsoft Corp, NVIDIA Corp, Visa Inc Class A, and PayPal Holdings Inc at 21.45%, 20.37%, 4.98%, 3.95%, and 3.42%.

Mastercard Inc A (3.19%), Adobe Inc (2.8%), and Salesforce.com Inc (2.26%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the XLK’s holdings at 2.26% and 2.23%.

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Risk Analysis

EFAXLK
Mean Return0.571.7
R-squared96.7873.56
Std. Deviation15.0115.58
Alpha0.4710.43
Beta0.980.95
Sharpe Ratio0.411.27
Treynor Ratio5.3321.44

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

The Technology Select Sector SPDR Fund (XLK) has a Mean Return of 1.7 with a Beta of 0.95 and a Standard Deviation of 15.58. Its Sharpe Ratio is 1.27 while XLK’s Treynor Ratio is 21.44. Furthermore, the fund has a Alpha of 10.43 and a R-squared of 73.56.

EFA’s Mean Return is 1.13 points lower than that of XLK and its R-squared is 23.22 points higher. With a Standard Deviation of 15.01, EFA is slightly less volatile than XLK. The Alpha and Beta of EFA are 9.96 points lower and 0.03 points higher than XLK’s Alpha and Beta.

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Performance

Annual Returns

EFA vs. XLK - Annual Returns

YearEFAXLK
20207.92%43.67%
201921.94%49.97%
2018-13.83%-1.56%
201724.94%34.27%
20160.96%14.81%
2015-0.9%5.62%
2014-5.04%17.75%
201322.62%25.98%
201217.22%15.47%
2011-12.18%2.69%
20107.52%11.6%

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 XLK, returning 49.97% on an annual basis. The poorest year for XLK in the last ten years was 2018, with a yield of -1.56%. Most years the Technology Select Sector SPDR Fund has given investors modest returns, such as in 2016, 2012, and 2014, when gains were 14.81%, 15.47%, and 17.75% respectively.

Portfolio Growth

EFA vs. XLK - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
EFA$10,000$18,2696.47%
XLK$10,000$67,79020.02%

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 XLK, the end total would have been $67,790. This equates to a $57,790 profit over 11 years and a compound annual growth rate (CAGR) of 20.02%.

EFA’s CAGR is 13.55 percentage points lower than that of XLK and as a result, would have yielded $49,521 less on a $10,000 investment. Thus, EFA performed worse than XLK by 13.55% annually.


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