PFF vs. XLC: What’s The Difference?

The iShares Preferred and Income Securities ETF (PFF) and the Communication Services Select Sector SPDR Fund (XLC) are both among the Top 100 ETFs. PFF is a iShares Preferred Stock fund and XLC is a SPDR State Street Global Advisors Communications fund. So, what’s the difference between PFF and XLC? And which fund is better?

The expense ratio of PFF is 0.34 percentage points higher than XLC’s (0.46% vs. 0.12%). PFF also has a higher exposure to the utilities sector and a higher standard deviation. Overall, PFF has provided lower returns than XLC over the past 2 years.

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

Summary

PFF XLC
Name iShares Preferred and Income Securities ETF Communication Services Select Sector SPDR Fund
Category Preferred Stock Communications
Issuer iShares SPDR State Street Global Advisors
AUM 19.8B 14.09B
Avg. Return 6.90% 29.04%
Div. Yield 4.47% 0.62%
Expense Ratio 0.46% 0.12%

The iShares Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

The Communication Services Select Sector SPDR Fund (XLC) is a Communications fund that is issued by SPDR State Street Global Advisors. It currently has 14.09B total assets under management and has yielded an average annual return of 29.04% over the past 10 years. The fund has a dividend yield of 0.62% with an expense ratio of 0.12%.

PFF’s dividend yield is 3.85% higher than that of XLC (4.47% vs. 0.62%). Also, PFF yielded on average 22.14% less per year over the past decade (6.90% vs. 29.04%). The expense ratio of PFF is 0.34 percentage points higher than XLC’s (0.46% vs. 0.12%).

Fund Composition

Industry Exposure

PFF vs. XLC - Industry Exposure

PFF XLC
Technology 0.0% 0.0%
Industrials 10.27% 0.0%
Energy 0.0% 0.0%
Communication Services 0.0% 100.0%
Utilities 81.81% 0.0%
Healthcare 3.54% 0.0%
Consumer Defensive 0.0% 0.0%
Real Estate 0.65% 0.0%
Financial Services 0.0% 0.0%
Consumer Cyclical 0.0% 0.0%
Basic Materials 3.74% 0.0%

The iShares Preferred and Income Securities ETF (PFF) has the most exposure to the Utilities sector at 81.81%. This is followed by Industrials and Basic Materials at 10.27% and 3.74% respectively. Financial Services (0.0%), Consumer Defensive (0.0%), and Communication Services (0.0%) only make up 0.00% of the fund’s total assets.

PFF’s mid-section with moderate exposure is comprised of Energy, Technology, Real Estate, Healthcare, and Basic Materials stocks at 0.0%, 0.0%, 0.65%, 3.54%, and 3.74%.

The Communication Services Select Sector SPDR Fund (XLC) has the most exposure to the Communication Services 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.

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

PFF is 81.81% more exposed to the Utilities sector than XLC (81.81% vs 0.0%). PFF’s exposure to Industrials and Basic Materials stocks is 10.27% higher and 3.74% higher respectively (10.27% vs. 0.0% and 3.74% vs. 0.0%). In total, Financial Services, Consumer Defensive, and Communication Services also make up 100.00% less of the fund’s holdings compared to XLC (0.00% vs. 100.00%).

Holdings

PFF - Holdings

PFF Holdings Weight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A 2.54%
BlackRock Cash Funds Treasury SL Agency 2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L- 1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L- 1.49%
ArcelorMittal S.A. 5.5% 1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A 1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B 1.14%
NextEra Energy Inc Unit 1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 1.08%
Avantor Inc Ser A 0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

XLC - Holdings

XLC Holdings Weight
Facebook Inc A 23.75%
Alphabet Inc A 11.49%
Alphabet Inc Class C 11.16%
Netflix Inc 4.78%
Charter Communications Inc A 4.65%
Comcast Corp Class A 4.44%
T-Mobile US Inc 4.41%
The Walt Disney Co 4.39%
AT&T Inc 4.35%
Verizon Communications Inc 4.33%

XLC’s Top Holdings are Facebook Inc A, Alphabet Inc A, Alphabet Inc Class C, Netflix Inc, and Charter Communications Inc A at 23.75%, 11.49%, 11.16%, 4.78%, and 4.65%.

Comcast Corp Class A (4.44%), T-Mobile US Inc (4.41%), and The Walt Disney Co (4.39%) have a slightly smaller but still significant weight. AT&T Inc and Verizon Communications Inc are also represented in the XLC’s holdings at 4.35% and 4.33%.

Risk Analysis

PFF XLC
Mean Return 0.52 0
R-squared 9.39 0
Std. Deviation 7.87 0
Alpha 3.45 0
Beta 0.81 0
Sharpe Ratio 0.72 0
Treynor Ratio 6.79 0

The iShares Preferred and Income Securities ETF (PFF) has a Beta of 0.81 with a Alpha of 3.45 and a Sharpe Ratio of 0.72. Its Mean Return is 0.52 while PFF’s R-squared is 9.39. Furthermore, the fund has a Treynor Ratio of 6.79 and a Standard Deviation of 7.87.

The Communication Services Select Sector SPDR Fund (XLC) has a Standard Deviation of 0 with a Beta of 0 and a Sharpe Ratio of 0. Its R-squared is 0 while XLC’s Mean Return is 0. Furthermore, the fund has a Treynor Ratio of 0 and a Alpha of 0.

PFF’s Mean Return is 0.52 points higher than that of XLC and its R-squared is 9.39 points higher. With a Standard Deviation of 7.87, PFF is slightly more volatile than XLC. The Alpha and Beta of PFF are 3.45 points higher and 0.81 points higher than XLC’s Alpha and Beta.

Performance

Annual Returns

PFF vs. XLC - Annual Returns

Year PFF XLC
2020 7.94% 26.85%
2019 15.62% 31.22%
2018 -4.77% 0.0%
2017 8.33% 0.0%
2016 1.26% 0.0%
2015 4.62% 0.0%
2014 13.45% 0.0%
2013 -0.59% 0.0%
2012 18.25% 0.0%
2011 -2.2% 0.0%
2010 13.96% 0.0%

PFF had its best year in 2012 with an annual return of 18.25%. PFF’s worst year over the past decade yielded -4.77% and occurred in 2018. In most years the iShares Preferred and Income Securities ETF provided moderate returns such as in 2015, 2020, and 2017 where annual returns amounted to 4.62%, 7.94%, and 8.33% respectively.

The year 2019 was the strongest year for XLC, returning 31.22% on an annual basis. The poorest year for XLC in the last ten years was 2018, with a yield of 0.0%. Most years the Communication Services Select Sector SPDR Fund has given investors modest returns, such as in 2014, 2013, and 2012, when gains were 0.0%, 0.0%, and 0.0% respectively.

Portfolio Growth

PFF vs. XLC - Portfolio Growth

Fund Initial Balance Final Balance CAGR
PFF $10,000 $12,480 6.90%
XLC $10,000 $16,645 29.04%

A $10,000 investment in PFF would have resulted in a final balance of $12,480. This is a profit of $2,480 over 2 years and amounts to a compound annual growth rate (CAGR) of 6.90%.

With a $10,000 investment in XLC, the end total would have been $16,645. This equates to a $6,645 profit over 2 years and a compound annual growth rate (CAGR) of 29.04%.

PFF’s CAGR is 22.14 percentage points lower than that of XLC and as a result, would have yielded $4,165 less on a $10,000 investment. Thus, PFF performed worse than XLC by 22.14% annually.


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