HYG vs. XLI: What’s The Difference?

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the Industrial Select Sector SPDR Fund (XLI) are both among the Top 100 ETFs. HYG is a iShares High Yield Bond fund and XLI is a SPDR State Street Global Advisors Industrials fund. So, what’s the difference between HYG and XLI? And which fund is better?

The expense ratio of HYG is 0.36 percentage points higher than XLI’s (0.48% vs. 0.12%). HYG is mostly comprised of BB bonds while XLI has a high exposure to the industrials sector. Overall, HYG has provided lower returns than XLI over the past 11 years.

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

Summary

HYG XLI
Name iShares iBoxx $ High Yield Corporate Bond ETF Industrial Select Sector SPDR Fund
Category High Yield Bond Industrials
Issuer iShares SPDR State Street Global Advisors
AUM 20.03B 19.33B
Avg. Return 6.42% 14.44%
Div. Yield 4.44% 1.25%
Expense Ratio 0.48% 0.12%

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.

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%.

HYG’s dividend yield is 3.19% higher than that of XLI (4.44% vs. 1.25%). Also, HYG yielded on average 8.03% less per year over the past decade (6.42% vs. 14.44%). The expense ratio of HYG is 0.36 percentage points higher than XLI’s (0.48% vs. 0.12%).

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Fund Composition

Holdings

HYG - Holdings

HYG Bond Sectors Weight
BB 56.53%
B 31.27%
Below B 11.4%
BBB 0.61%
AAA 0.28%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.09%

HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) 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%.

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Risk Analysis

HYG XLI
Mean Return 0.46 1.14
R-squared 4.1 78.97
Std. Deviation 6.96 17.13
Alpha 3.58 2.38
Beta 0.48 1.08
Sharpe Ratio 0.7 0.76
Treynor Ratio 10.01 11.34

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Treynor Ratio of 10.01 with a Standard Deviation of 6.96 and a R-squared of 4.1. Its Beta is 0.48 while HYG’s Alpha is 3.58. Furthermore, the fund has a Mean Return of 0.46 and a Sharpe Ratio of 0.7.

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

HYG’s Mean Return is 0.68 points lower than that of XLI and its R-squared is 74.87 points lower. With a Standard Deviation of 6.96, HYG is slightly less volatile than XLI. The Alpha and Beta of HYG are 1.20 points higher and 0.60 points lower than XLI’s Alpha and Beta.

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Performance

Annual Returns

HYG vs. XLI - Annual Returns

Year HYG XLI
2020 4.12% 11.0%
2019 14.23% 29.11%
2018 -1.93% -13.1%
2017 6.09% 23.85%
2016 13.92% 19.93%
2015 -5.55% -4.27%
2014 2.0% 10.44%
2013 5.9% 40.44%
2012 13.83% 14.86%
2011 5.89% -1.01%
2010 12.07% 27.62%

HYG had its best year in 2019 with an annual return of 14.23%. HYG’s worst year over the past decade yielded -5.55% and occurred in 2015. In most years the iShares iBoxx $ High Yield Corporate Bond ETF provided moderate returns such as in 2011, 2013, and 2017 where annual returns amounted to 5.89%, 5.9%, and 6.09% 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

HYG vs. XLI - Portfolio Growth

Fund Initial Balance Final Balance CAGR
HYG $10,000 $19,427 6.42%
XLI $10,000 $39,853 14.44%

A $10,000 investment in HYG would have resulted in a final balance of $19,427. This is a profit of $9,427 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.42%.

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%.

HYG’s CAGR is 8.03 percentage points lower than that of XLI and as a result, would have yielded $20,426 less on a $10,000 investment. Thus, HYG performed worse than XLI by 8.03% annually.


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