The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) and the Industrial Select Sector SPDR Fund (XLI) are both among the Top 100 ETFs. EMB is a iShares Emerging Markets Bond fund and XLI is a SPDR State Street Global Advisors Industrials fund. So, what’s the difference between EMB and XLI? And which fund is better?
The expense ratio of EMB is 0.27 percentage points higher than XLI’s (0.39% vs. 0.12%). EMB is mostly comprised of BBB bonds while XLI has a high exposure to the industrials sector. Overall, EMB has provided lower returns than XLI over the past 11 years.
In this article, we’ll compare EMB vs. XLI. We’ll look at risk metrics and holdings, as well as at their industry exposure and performance. Moreover, I’ll also discuss EMB’s and XLI’s annual returns, fund composition, and portfolio growth and examine how these affect their overall returns.
Summary
| EMB | XLI | |
| Name | iShares J.P. Morgan USD Emerging Markets Bond ETF | Industrial Select Sector SPDR Fund |
| Category | Emerging Markets Bond | Industrials |
| Issuer | iShares | SPDR State Street Global Advisors |
| AUM | 19.76B | 19.33B |
| Avg. Return | 6.43% | 14.44% |
| Div. Yield | 3.85% | 1.25% |
| Expense Ratio | 0.39% | 0.12% |
The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) is a Emerging Markets Bond fund that is issued by iShares. It currently has 19.76B total assets under management and has yielded an average annual return of 6.43% over the past 10 years. The fund has a dividend yield of 3.85% with an expense ratio of 0.39%.
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%.
EMB’s dividend yield is 2.60% higher than that of XLI (3.85% vs. 1.25%). Also, EMB yielded on average 8.01% less per year over the past decade (6.43% vs. 14.44%). The expense ratio of EMB is 0.27 percentage points higher than XLI’s (0.39% vs. 0.12%).
Fund Composition
Holdings
| EMB Bond Sectors | Weight |
| BBB | 33.79% |
| B | 21.97% |
| BB | 16.92% |
| A | 13.67% |
| AA | 7.97% |
| Below B | 4.49% |
| Others | 1.11% |
| AAA | 0.09% |
| US Government | 0.0% |
EMB’s Top Bond Sectors are ratings of BBB, B, BB, A, and AA at 33.79%, 21.97%, 16.92%, 13.67%, and 7.97%. The fund is less weighted towards Below B (4.49%), Others (1.11%), and AAA (0.09%) rated bonds.
| 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%.
Risk Analysis
| EMB | XLI | |
| Mean Return | 0.44 | 1.14 |
| R-squared | 23.34 | 78.97 |
| Std. Deviation | 8.44 | 17.13 |
| Alpha | 0.89 | 2.38 |
| Beta | 1.36 | 1.08 |
| Sharpe Ratio | 0.55 | 0.76 |
| Treynor Ratio | 3.24 | 11.34 |
The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has a Standard Deviation of 8.44 with a Beta of 1.36 and a Treynor Ratio of 3.24. Its R-squared is 23.34 while EMB’s Mean Return is 0.44. Furthermore, the fund has a Sharpe Ratio of 0.55 and a Alpha of 0.89.
The Industrial Select Sector SPDR Fund (XLI) has a R-squared of 78.97 with a Sharpe Ratio of 0.76 and a Treynor Ratio of 11.34. Its Alpha is 2.38 while XLI’s Standard Deviation is 17.13. Furthermore, the fund has a Beta of 1.08 and a Mean Return of 1.14.
EMB’s Mean Return is 0.70 points lower than that of XLI and its R-squared is 55.63 points lower. With a Standard Deviation of 8.44, EMB is slightly less volatile than XLI. The Alpha and Beta of EMB are 1.49 points lower and 0.28 points higher than XLI’s Alpha and Beta.
Performance
Annual Returns
| Year | EMB | XLI |
| 2020 | 5.48% | 11.0% |
| 2019 | 15.57% | 29.11% |
| 2018 | -5.67% | -13.1% |
| 2017 | 9.98% | 23.85% |
| 2016 | 9.41% | 19.93% |
| 2015 | 0.43% | -4.27% |
| 2014 | 6.69% | 10.44% |
| 2013 | -7.42% | 40.44% |
| 2012 | 17.64% | 14.86% |
| 2011 | 7.2% | -1.01% |
| 2010 | 11.47% | 27.62% |
EMB had its best year in 2012 with an annual return of 17.64%. EMB’s worst year over the past decade yielded -7.42% and occurred in 2013. In most years the iShares J.P. Morgan USD Emerging Markets Bond ETF provided moderate returns such as in 2014, 2011, and 2016 where annual returns amounted to 6.69%, 7.2%, and 9.41% 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
| Fund | Initial Balance | Final Balance | CAGR |
| EMB | $10,000 | $19,295 | 6.43% |
| XLI | $10,000 | $39,853 | 14.44% |
A $10,000 investment in EMB would have resulted in a final balance of $19,295. This is a profit of $9,295 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.43%.
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%.
EMB’s CAGR is 8.01 percentage points lower than that of XLI and as a result, would have yielded $20,558 less on a $10,000 investment. Thus, EMB performed worse than XLI by 8.01% annually.
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