EMB vs. XLI: What’s The Difference?

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%).

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).

Fund Composition

Holdings

EMB - 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

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%.

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).

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.

BTW: Uncorrelated crypto assets such as Bitcoin can serve as a hedge and mitigate risk. I've allocated around 5% of my portfolio to crypto assets through Gemini - the simplest and cheapest broker I've found! Click here to read more (link to Gemini).

Performance

Annual Returns

EMB vs. XLI - 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

EMB vs. XLI - 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.


Current recommendations:

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) 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!

2) 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!).

3) If you are interested in crypto, check out Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply