The iShares MSCI EAFE ETF (EFA) and the Consumer Discretionary Select Sector SPDR Fund (XLY) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and XLY is a SPDR State Street Global Advisors Consumer Cyclical fund. So, what’s the difference between EFA and XLY? And which fund is better?
The expense ratio of EFA is 0.20 percentage points higher than XLY’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 XLY over the past ten years.
In this article, we’ll compare EFA vs. XLY. We’ll look at performance and annual returns, as well as at their fund composition and risk metrics. Moreover, I’ll also discuss EFA’s and XLY’s holdings, portfolio growth, and industry exposure and examine how these affect their overall returns.
|Name||iShares MSCI EAFE ETF||Consumer Discretionary Select Sector SPDR Fund|
|Category||Foreign Large Blend||Consumer Cyclical|
|Issuer||iShares||SPDR State Street Global Advisors|
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 Consumer Discretionary Select Sector SPDR Fund (XLY) is a Consumer Cyclical fund that is issued by SPDR State Street Global Advisors. It currently has 20.21B total assets under management and has yielded an average annual return of 18.86% over the past 10 years. The fund has a dividend yield of 0.63% with an expense ratio of 0.12%.
EFA’s dividend yield is 1.65% higher than that of XLY (2.28% vs. 0.63%). Also, EFA yielded on average 12.39% less per year over the past decade (6.47% vs. 18.86%). The expense ratio of EFA is 0.20 percentage points higher than XLY’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).
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 Consumer Discretionary Select Sector SPDR Fund (XLY) has the most exposure to the Consumer Cyclical sector at 94.1%. This is followed by Consumer Defensive and Technology at 5.34% and 0.57% respectively. Financial Services (0.0%), Real Estate (0.0%), and Healthcare (0.0%) only make up 0.00% of the fund’s total assets.
XLY’s mid-section with moderate exposure is comprised of Utilities, Communication Services, Energy, Industrials, and Technology stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.57%.
EFA is 16.88% more exposed to the Financial Services sector than XLY (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 12.54% more of the fund’s holdings compared to XLY (12.54% vs. 0.00%).
|ASML Holding NV||1.69%|
|Roche Holding AG||1.55%|
|LVMH Moet Hennessy Louis Vuitton SE||1.28%|
|Toyota Motor Corp||1.09%|
|AIA Group Ltd||0.88%|
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%.
|The Home Depot Inc||8.74%|
|Nike Inc B||4.45%|
|Lowe’s Companies Inc||3.58%|
|Booking Holdings Inc||2.35%|
|TJX Companies Inc||2.12%|
XLY’s Top Holdings are Amazon.com Inc, Tesla Inc, The Home Depot Inc, McDonald’s Corp, and Nike Inc B at 22.9%, 13.5%, 8.74%, 4.5%, and 4.45%.
Lowe’s Companies Inc (3.58%), Starbucks Corp (3.44%), and Target Corp (3.12%) have a slightly smaller but still significant weight. Booking Holdings Inc and TJX Companies Inc are also represented in the XLY’s holdings at 2.35% and 2.12%.
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).
The iShares MSCI EAFE ETF (EFA) has a Treynor Ratio of 5.33 with a Sharpe Ratio of 0.41 and a R-squared of 96.78. Its Alpha is 0.47 while EFA’s Mean Return is 0.57. Furthermore, the fund has a Standard Deviation of 15.01 and a Beta of 0.98.
The Consumer Discretionary Select Sector SPDR Fund (XLY) has a Sharpe Ratio of 1.06 with a Standard Deviation of 15.97 and a Treynor Ratio of 16.69. Its Mean Return is 1.47 while XLY’s R-squared is 80.84. Furthermore, the fund has a Alpha of 6.96 and a Beta of 1.02.
EFA’s Mean Return is 0.90 points lower than that of XLY and its R-squared is 15.94 points higher. With a Standard Deviation of 15.01, EFA is slightly less volatile than XLY. The Alpha and Beta of EFA are 6.49 points lower and 0.04 points lower than XLY’s Alpha and Beta.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
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 XLY, returning 42.74% on an annual basis. The poorest year for XLY in the last ten years was 2018, with a yield of 1.66%. Most years the Consumer Discretionary Select Sector SPDR Fund has given investors modest returns, such as in 2015, 2017, and 2012, when gains were 9.93%, 22.77%, and 23.6% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
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 XLY, the end total would have been $63,066. This equates to a $53,066 profit over 11 years and a compound annual growth rate (CAGR) of 18.86%.
EFA’s CAGR is 12.39 percentage points lower than that of XLY and as a result, would have yielded $44,797 less on a $10,000 investment. Thus, EFA performed worse than XLY by 12.39% annually.
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)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) 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!
3) 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!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.