IWM vs. XLF: What’s The Difference?

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

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

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

Summary

IWM XLF
Name iShares Russell 2000 ETF Financial Select Sector SPDR Fund
Category Small Blend Financial
Issuer iShares SPDR State Street Global Advisors
AUM 66.48B 40.81B
Avg. Return 13.52% 12.17%
Div. Yield 0.86% 1.57%
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 Financial Select Sector SPDR Fund (XLF) is a Financial fund that is issued by SPDR State Street Global Advisors. It currently has 40.81B total assets under management and has yielded an average annual return of 12.17% over the past 10 years. The fund has a dividend yield of 1.57% with an expense ratio of 0.12%.

IWM’s dividend yield is 0.71% lower than that of XLF (0.86% vs. 1.57%). Also, IWM yielded on average 1.36% more per year over the past decade (13.52% vs. 12.17%). The expense ratio of IWM is 0.07 percentage points higher than XLF’s (0.19% 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

Industry Exposure

IWM vs. XLF - Industry Exposure

IWM XLF
Technology 14.21% 0.0%
Industrials 14.78% 0.0%
Energy 3.74% 0.0%
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% 100.0%
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 Financial Select Sector SPDR Fund (XLF) has the most exposure to the Financial Services sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Real Estate (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

XLF’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, 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 XLF (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 11.13% more of the fund’s holdings compared to XLF (11.13% vs. 0.00%).

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%.

XLF - Holdings

XLF Holdings Weight
Berkshire Hathaway Inc Class B 12.83%
JPMorgan Chase & Co 11.47%
Bank of America Corp 7.57%
Wells Fargo & Co 4.56%
Citigroup Inc 3.56%
Morgan Stanley 3.32%
Goldman Sachs Group Inc 3.15%
BlackRock Inc 3.02%
Charles Schwab Corp 2.66%
American Express Co 2.62%

XLF’s Top Holdings are Berkshire Hathaway Inc Class B, JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co, and Citigroup Inc at 12.83%, 11.47%, 7.57%, 4.56%, and 3.56%.

Morgan Stanley (3.32%), Goldman Sachs Group Inc (3.15%), and BlackRock Inc (3.02%) have a slightly smaller but still significant weight. Charles Schwab Corp and American Express Co are also represented in the XLF’s holdings at 2.66% and 2.62%.

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

IWM XLF
Mean Return 1.12 1.21
R-squared 77.73 73.26
Std. Deviation 18.87 18.86
Alpha -5.12 2.63
Beta 1.23 1.15
Sharpe Ratio 0.68 0.74
Treynor Ratio 9.56 11.25

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

The Financial Select Sector SPDR Fund (XLF) has a Sharpe Ratio of 0.74 with a Mean Return of 1.21 and a Standard Deviation of 18.86. Its R-squared is 73.26 while XLF’s Beta is 1.15. Furthermore, the fund has a Alpha of 2.63 and a Treynor Ratio of 11.25.

IWM’s Mean Return is 0.09 points lower than that of XLF and its R-squared is 4.47 points higher. With a Standard Deviation of 18.87, IWM is slightly more volatile than XLF. The Alpha and Beta of IWM are 7.75 points lower and 0.08 points higher than XLF’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 Coinbase - the simplest and cheapest broker I've found! Click here to read more (link to Coinbase).

Performance

Annual Returns

IWM vs. XLF - Annual Returns

Year IWM XLF
2020 19.89% -1.68%
2019 25.42% 31.88%
2018 -11.02% -13.09%
2017 14.66% 22.03%
2016 21.36% 22.55%
2015 -4.33% -1.6%
2014 4.94% 15.02%
2013 38.85% 35.37%
2012 16.39% 28.53%
2011 -4.19% -17.16%
2010 26.76% 11.97%

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 2013 was the strongest year for XLF, returning 35.37% on an annual basis. The poorest year for XLF in the last ten years was 2011, with a yield of -17.16%. Most years the Financial Select Sector SPDR Fund has given investors modest returns, such as in 2010, 2014, and 2017, when gains were 11.97%, 15.02%, and 22.03% respectively.

Portfolio Growth

IWM vs. XLF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
IWM $10,000 $36,686 13.52%
XLF $10,000 $30,782 12.17%

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 XLF, the end total would have been $30,782. This equates to a $20,782 profit over 11 years and a compound annual growth rate (CAGR) of 12.17%.

IWM’s CAGR is 1.36 percentage points higher than that of XLF and as a result, would have yielded $5,904 more on a $10,000 investment. Thus, IWM outperformed XLF by 1.36% 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 Coinbase. I've started allocating a small amount of assets to the growing crypto space and Coinbase has just been a breeze to use. Once you register, make sure to also open an Coinbase Pro account to buy crypto at the lowest fees on the market (just 0.1%!).

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

Leave a Reply