IWM vs. XLK: What’s The Difference?

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

The expense ratio of IWM is 0.07 percentage points higher than XLK’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 lower returns than XLK over the past ten years.

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

Summary

IWM XLK
Name iShares Russell 2000 ETF Technology Select Sector SPDR Fund
Category Small Blend Technology
Issuer iShares SPDR State Street Global Advisors
AUM 66.48B 42.3B
Avg. Return 13.52% 20.02%
Div. Yield 0.86% 0.73%
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 Technology Select Sector SPDR Fund (XLK) is a Technology fund that is issued by SPDR State Street Global Advisors. It currently has 42.3B total assets under management and has yielded an average annual return of 20.02% over the past 10 years. The fund has a dividend yield of 0.73% with an expense ratio of 0.12%.

IWM’s dividend yield is 0.13% higher than that of XLK (0.86% vs. 0.73%). Also, IWM yielded on average 6.50% less per year over the past decade (13.52% vs. 20.02%). The expense ratio of IWM is 0.07 percentage points higher than XLK’s (0.19% vs. 0.12%).

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Fund Composition

Industry Exposure

IWM vs. XLK - Industry Exposure

IWM XLK
Technology 14.21% 87.54%
Industrials 14.78% 1.75%
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% 10.71%
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 Technology Select Sector SPDR Fund (XLK) has the most exposure to the Technology sector at 87.54%. This is followed by Financial Services and Industrials at 10.71% and 1.75% 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.

XLK’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 1.75%.

IWM is 20.30% more exposed to the Healthcare sector than XLK (20.3% vs 0.0%). IWM’s exposure to Industrials and Technology stocks is 13.03% higher and 73.33% lower respectively (14.78% vs. 1.75% and 14.21% vs. 87.54%). In total, Consumer Defensive, Basic Materials, and Energy also make up 11.13% more of the fund’s holdings compared to XLK (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%.

XLK - Holdings

XLK Holdings Weight
Apple Inc 21.45%
Microsoft Corp 20.37%
NVIDIA Corp 4.98%
Visa Inc Class A 3.95%
PayPal Holdings Inc 3.42%
Mastercard Inc A 3.19%
Adobe Inc 2.8%
Salesforce.com Inc 2.26%
Intel Corp 2.26%
Cisco Systems Inc 2.23%

XLK’s Top Holdings are Apple Inc, Microsoft Corp, NVIDIA Corp, Visa Inc Class A, and PayPal Holdings Inc at 21.45%, 20.37%, 4.98%, 3.95%, and 3.42%.

Mastercard Inc A (3.19%), Adobe Inc (2.8%), and Salesforce.com Inc (2.26%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the XLK’s holdings at 2.26% and 2.23%.

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Risk Analysis

IWM XLK
Mean Return 1.12 1.7
R-squared 77.73 73.56
Std. Deviation 18.87 15.58
Alpha -5.12 10.43
Beta 1.23 0.95
Sharpe Ratio 0.68 1.27
Treynor Ratio 9.56 21.44

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

The Technology Select Sector SPDR Fund (XLK) has a Mean Return of 1.7 with a R-squared of 73.56 and a Alpha of 10.43. Its Treynor Ratio is 21.44 while XLK’s Standard Deviation is 15.58. Furthermore, the fund has a Sharpe Ratio of 1.27 and a Beta of 0.95.

IWM’s Mean Return is 0.58 points lower than that of XLK and its R-squared is 4.17 points higher. With a Standard Deviation of 18.87, IWM is slightly more volatile than XLK. The Alpha and Beta of IWM are 15.55 points lower and 0.28 points higher than XLK’s Alpha and Beta.

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Performance

Annual Returns

IWM vs. XLK - Annual Returns

Year IWM XLK
2020 19.89% 43.67%
2019 25.42% 49.97%
2018 -11.02% -1.56%
2017 14.66% 34.27%
2016 21.36% 14.81%
2015 -4.33% 5.62%
2014 4.94% 17.75%
2013 38.85% 25.98%
2012 16.39% 15.47%
2011 -4.19% 2.69%
2010 26.76% 11.6%

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 2019 was the strongest year for XLK, returning 49.97% on an annual basis. The poorest year for XLK in the last ten years was 2018, with a yield of -1.56%. Most years the Technology Select Sector SPDR Fund has given investors modest returns, such as in 2016, 2012, and 2014, when gains were 14.81%, 15.47%, and 17.75% respectively.

Portfolio Growth

IWM vs. XLK - Portfolio Growth

Fund Initial Balance Final Balance CAGR
IWM $10,000 $36,686 13.52%
XLK $10,000 $67,790 20.02%

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 XLK, the end total would have been $67,790. This equates to a $57,790 profit over 11 years and a compound annual growth rate (CAGR) of 20.02%.

IWM’s CAGR is 6.50 percentage points lower than that of XLK and as a result, would have yielded $31,104 less on a $10,000 investment. Thus, IWM performed worse than XLK by 6.50% annually.


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