IWM vs. XLE: What’s The Difference?

The iShares Russell 2000 ETF (IWM) and the Energy Select Sector SPDR Fund (XLE) are both among the Top 100 ETFs. IWM is a iShares Small Blend fund and XLE is a SPDR State Street Global Advisors Equity Energy fund. So, what’s the difference between IWM and XLE? And which fund is better?

The expense ratio of IWM is 0.07 percentage points higher than XLE’s (0.19% vs. 0.12%). IWM also has a higher exposure to the healthcare sector and a lower standard deviation. Overall, IWM has provided higher returns than XLE over the past ten years.

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

Summary

IWM XLE
Name iShares Russell 2000 ETF Energy Select Sector SPDR Fund
Category Small Blend Equity Energy
Issuer iShares SPDR State Street Global Advisors
AUM 66.48B 25.55B
Avg. Return 13.52% 1.28%
Div. Yield 0.86% 3.92%
Expense Ratio 0.19% 0.12%

The iShares Russell 2000 ETF (IWM) is a Small Blend fund that is issued by iShares. It currently has 66.48B total assets under management and has yielded an average annual return of 13.52% over the past 10 years. The fund has a dividend yield of 0.86% with an expense ratio of 0.19%.

The Energy Select Sector SPDR Fund (XLE) is a Equity Energy fund that is issued by SPDR State Street Global Advisors. It currently has 25.55B total assets under management and has yielded an average annual return of 1.28% over the past 10 years. The fund has a dividend yield of 3.92% with an expense ratio of 0.12%.

IWM’s dividend yield is 3.06% lower than that of XLE (0.86% vs. 3.92%). Also, IWM yielded on average 12.24% more per year over the past decade (13.52% vs. 1.28%). The expense ratio of IWM is 0.07 percentage points higher than XLE’s (0.19% vs. 0.12%).

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Fund Composition

Industry Exposure

IWM vs. XLE - Industry Exposure

IWM XLE
Technology 14.21% 0.0%
Industrials 14.78% 0.0%
Energy 3.74% 100.0%
Communication Services 3.79% 0.0%
Utilities 2.44% 0.0%
Healthcare 20.3% 0.0%
Consumer Defensive 3.65% 0.0%
Real Estate 8.59% 0.0%
Financial Services 13.76% 0.0%
Consumer Cyclical 10.99% 0.0%
Basic Materials 3.74% 0.0%

The iShares Russell 2000 ETF (IWM) has the most exposure to the Healthcare sector at 20.3%. This is followed by Industrials and Technology at 14.78% and 14.21% respectively. Consumer Defensive (3.65%), Basic Materials (3.74%), and Energy (3.74%) only make up 11.13% of the fund’s total assets.

IWM’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Consumer Cyclical, Financial Services, and Technology stocks at 3.79%, 8.59%, 10.99%, 13.76%, and 14.21%.

The Energy Select Sector SPDR Fund (XLE) has the most exposure to the Energy sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Financial Services (0.0%), and Real Estate (0.0%) only make up 0.00% of the fund’s total assets.

XLE’s mid-section with moderate exposure is comprised of Consumer Defensive, Healthcare, Utilities, Communication Services, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

IWM is 20.30% more exposed to the Healthcare sector than XLE (20.3% vs 0.0%). IWM’s exposure to Industrials and Technology stocks is 14.78% higher and 14.21% higher respectively (14.78% vs. 0.0% and 14.21% vs. 0.0%). In total, Consumer Defensive, Basic Materials, and Energy also make up 88.87% less of the fund’s holdings compared to XLE (11.13% vs. 100.00%).

Holdings

IWM - Holdings

IWM Holdings Weight
AMC Entertainment Holdings Inc Class A 0.52%
Intellia Therapeutics Inc 0.33%
Crocs Inc 0.3%
BlackRock Cash Funds Treasury SL Agency 0.29%
Tenet Healthcare Corp 0.26%
Lattice Semiconductor Corp 0.26%
Tetra Tech Inc 0.25%
II-VI Inc 0.25%
EastGroup Properties Inc 0.24%
Arrowhead Pharmaceuticals Inc 0.24%

IWM’s Top Holdings are AMC Entertainment Holdings Inc Class A, Intellia Therapeutics Inc, Crocs Inc, BlackRock Cash Funds Treasury SL Agency, and Tenet Healthcare Corp at 0.52%, 0.33%, 0.3%, 0.29%, and 0.26%.

Lattice Semiconductor Corp (0.26%), Tetra Tech Inc (0.25%), and II-VI Inc (0.25%) have a slightly smaller but still significant weight. EastGroup Properties Inc and Arrowhead Pharmaceuticals Inc are also represented in the IWM’s holdings at 0.24% and 0.24%.

XLE - Holdings

XLE Holdings Weight
Exxon Mobil Corp 23.7%
Chevron Corp 20.03%
ConocoPhillips 4.64%
EOG Resources Inc 4.46%
Schlumberger Ltd 4.43%
Marathon Petroleum Corp 4.17%
Pioneer Natural Resources Co 4.08%
Phillips 66 4.07%
Kinder Morgan Inc Class P 3.85%
Williams Companies Inc 3.5%

XLE’s Top Holdings are Exxon Mobil Corp, Chevron Corp, ConocoPhillips, EOG Resources Inc, and Schlumberger Ltd at 23.7%, 20.03%, 4.64%, 4.46%, and 4.43%.

Marathon Petroleum Corp (4.17%), Pioneer Natural Resources Co (4.08%), and Phillips 66 (4.07%) have a slightly smaller but still significant weight. Kinder Morgan Inc Class P and Williams Companies Inc are also represented in the XLE’s holdings at 3.85% and 3.5%.

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Risk Analysis

IWM XLE
Mean Return 1.12 0.32
R-squared 77.73 61.84
Std. Deviation 18.87 27.52
Alpha -5.12 -11.98
Beta 1.23 1.54
Sharpe Ratio 0.68 0.12
Treynor Ratio 9.56 -0.4

The iShares Russell 2000 ETF (IWM) has a R-squared of 77.73 with a Beta of 1.23 and a Mean Return of 1.12. Its Sharpe Ratio is 0.68 while IWM’s Alpha is -5.12. Furthermore, the fund has a Standard Deviation of 18.87 and a Treynor Ratio of 9.56.

The Energy Select Sector SPDR Fund (XLE) has a Mean Return of 0.32 with a Alpha of -11.98 and a Beta of 1.54. Its Treynor Ratio is -0.4 while XLE’s R-squared is 61.84. Furthermore, the fund has a Standard Deviation of 27.52 and a Sharpe Ratio of 0.12.

IWM’s Mean Return is 0.80 points higher than that of XLE and its R-squared is 15.89 points higher. With a Standard Deviation of 18.87, IWM is slightly less volatile than XLE. The Alpha and Beta of IWM are 6.86 points higher and 0.31 points lower than XLE’s Alpha and Beta.

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Performance

Annual Returns

IWM vs. XLE - Annual Returns

Year IWM XLE
2020 19.89% -32.56%
2019 25.42% 11.87%
2018 -11.02% -18.1%
2017 14.66% -1.01%
2016 21.36% 27.95%
2015 -4.33% -21.47%
2014 4.94% -8.61%
2013 38.85% 26.16%
2012 16.39% 5.17%
2011 -4.19% 2.98%
2010 26.76% 21.7%

IWM had its best year in 2013 with an annual return of 38.85%. IWM’s worst year over the past decade yielded -11.02% and occurred in 2018. In most years the iShares Russell 2000 ETF provided moderate returns such as in 2017, 2012, and 2020 where annual returns amounted to 14.66%, 16.39%, and 19.89% respectively.

The year 2016 was the strongest year for XLE, returning 27.95% on an annual basis. The poorest year for XLE in the last ten years was 2020, with a yield of -32.56%. Most years the Energy Select Sector SPDR Fund has given investors modest returns, such as in 2017, 2011, and 2012, when gains were -1.01%, 2.98%, and 5.17% respectively.

Portfolio Growth

IWM vs. XLE - Portfolio Growth

Fund Initial Balance Final Balance CAGR
IWM $10,000 $36,686 13.52%
XLE $10,000 $9,339 1.28%

A $10,000 investment in IWM would have resulted in a final balance of $36,686. This is a profit of $26,686 over 11 years and amounts to a compound annual growth rate (CAGR) of 13.52%.

With a $10,000 investment in XLE, the end total would have been $9,339. This equates to a $-661 profit over 11 years and a compound annual growth rate (CAGR) of 1.28%.

IWM’s CAGR is 12.24 percentage points higher than that of XLE and as a result, would have yielded $27,347 more on a $10,000 investment. Thus, IWM outperformed XLE by 12.24% annually.


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