SCHD vs. XLY: What’s The Difference?

The Schwab U.S. Dividend Equity ETF (SCHD) and the Consumer Discretionary Select Sector SPDR Fund (XLY) are both among the Top 100 ETFs. SCHD is a Schwab ETFs Large Value fund and XLY is a SPDR State Street Global Advisors Consumer Cyclical fund. So, what’s the difference between SCHD and XLY? And which fund is better?

The expense ratio of SCHD is 0.06 percentage points lower than XLY’s (0.06% vs. 0.12%). SCHD also has a higher exposure to the financial services sector and a lower standard deviation. Overall, SCHD has provided lower returns than XLY over the past 8 years.

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

Summary

SCHD XLY
Name Schwab U.S. Dividend Equity ETF Consumer Discretionary Select Sector SPDR Fund
Category Large Value Consumer Cyclical
Issuer Schwab ETFs SPDR State Street Global Advisors
AUM 26B 20.21B
Avg. Return 14.80% 18.86%
Div. Yield 2.89% 0.63%
Expense Ratio 0.06% 0.12%

The Schwab U.S. Dividend Equity ETF (SCHD) is a Large Value fund that is issued by Schwab ETFs. It currently has 26B total assets under management and has yielded an average annual return of 14.80% over the past 10 years. The fund has a dividend yield of 2.89% with an expense ratio of 0.06%.

The Consumer Discretionary Select Sector SPDR Fund (XLY) is a Consumer Cyclical fund that is issued by SPDR State Street Global Advisors. It currently has 20.21B total assets under management and has yielded an average annual return of 18.86% over the past 10 years. The fund has a dividend yield of 0.63% with an expense ratio of 0.12%.

SCHD’s dividend yield is 2.26% higher than that of XLY (2.89% vs. 0.63%). Also, SCHD yielded on average 4.06% less per year over the past decade (14.80% vs. 18.86%). The expense ratio of SCHD is 0.06 percentage points lower than XLY’s (0.06% 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

SCHD vs. XLY - Industry Exposure

SCHD XLY
Technology 16.26% 0.57%
Industrials 18.05% 0.0%
Energy 1.87% 0.0%
Communication Services 4.96% 0.0%
Utilities 0.0% 0.0%
Healthcare 12.64% 0.0%
Consumer Defensive 14.04% 5.34%
Real Estate 0.0% 0.0%
Financial Services 21.69% 0.0%
Consumer Cyclical 8.36% 94.1%
Basic Materials 2.13% 0.0%

The Schwab U.S. Dividend Equity ETF (SCHD) has the most exposure to the Financial Services sector at 21.69%. This is followed by Industrials and Technology at 18.05% and 16.26% respectively. Utilities (0.0%), Energy (1.87%), and Basic Materials (2.13%) only make up 4.00% of the fund’s total assets.

SCHD’s mid-section with moderate exposure is comprised of Communication Services, Consumer Cyclical, Healthcare, Consumer Defensive, and Technology stocks at 4.96%, 8.36%, 12.64%, 14.04%, and 16.26%.

The Consumer Discretionary Select Sector SPDR Fund (XLY) has the most exposure to the Consumer Cyclical sector at 94.1%. This is followed by Consumer Defensive and Technology at 5.34% and 0.57% respectively. Financial Services (0.0%), Real Estate (0.0%), and Healthcare (0.0%) only make up 0.00% of the fund’s total assets.

XLY’s mid-section with moderate exposure is comprised of Utilities, Communication Services, Energy, Industrials, and Technology stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.57%.

SCHD is 21.69% more exposed to the Financial Services sector than XLY (21.69% vs 0.0%). SCHD’s exposure to Industrials and Technology stocks is 18.05% higher and 15.69% higher respectively (18.05% vs. 0.0% and 16.26% vs. 0.57%). In total, Utilities, Energy, and Basic Materials also make up 4.00% more of the fund’s holdings compared to XLY (4.00% vs. 0.00%).

Holdings

SCHD - Holdings

SCHD Holdings Weight
Merck & Co Inc 4.24%
The Home Depot Inc 4.19%
Texas Instruments Inc 4.16%
Broadcom Inc 4.15%
Amgen Inc 4.11%
PepsiCo Inc 4.09%
BlackRock Inc 4.05%
Pfizer Inc 3.97%
Verizon Communications Inc 3.96%
Cisco Systems Inc 3.96%

SCHD’s Top Holdings are Merck & Co Inc, The Home Depot Inc, Texas Instruments Inc, Broadcom Inc, and Amgen Inc at 4.24%, 4.19%, 4.16%, 4.15%, and 4.11%.

PepsiCo Inc (4.09%), BlackRock Inc (4.05%), and Pfizer Inc (3.97%) have a slightly smaller but still significant weight. Verizon Communications Inc and Cisco Systems Inc are also represented in the SCHD’s holdings at 3.96% and 3.96%.

XLY - Holdings

XLY Holdings Weight
Amazon.com Inc 22.9%
Tesla Inc 13.5%
The Home Depot Inc 8.74%
McDonald’s Corp 4.5%
Nike Inc B 4.45%
Lowe’s Companies Inc 3.58%
Starbucks Corp 3.44%
Target Corp 3.12%
Booking Holdings Inc 2.35%
TJX Companies Inc 2.12%

XLY’s Top Holdings are Amazon.com Inc, Tesla Inc, The Home Depot Inc, McDonald’s Corp, and Nike Inc B at 22.9%, 13.5%, 8.74%, 4.5%, and 4.45%.

Lowe’s Companies Inc (3.58%), Starbucks Corp (3.44%), and Target Corp (3.12%) have a slightly smaller but still significant weight. Booking Holdings Inc and TJX Companies Inc are also represented in the XLY’s holdings at 2.35% and 2.12%.

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

SCHD XLY
Mean Return 0 1.47
R-squared 0 80.84
Std. Deviation 0 15.97
Alpha 0 6.96
Beta 0 1.02
Sharpe Ratio 0 1.06
Treynor Ratio 0 16.69

The Schwab U.S. Dividend Equity ETF (SCHD) has a Beta of 0 with a Standard Deviation of 0 and a Sharpe Ratio of 0. Its Mean Return is 0 while SCHD’s Treynor Ratio is 0. Furthermore, the fund has a Alpha of 0 and a R-squared of 0.

The Consumer Discretionary Select Sector SPDR Fund (XLY) has a Mean Return of 1.47 with a Standard Deviation of 15.97 and a Alpha of 6.96. Its Treynor Ratio is 16.69 while XLY’s Sharpe Ratio is 1.06. Furthermore, the fund has a Beta of 1.02 and a R-squared of 80.84.

SCHD’s Mean Return is 1.47 points lower than that of XLY and its R-squared is 80.84 points lower. With a Standard Deviation of 0, SCHD is slightly less volatile than XLY. The Alpha and Beta of SCHD are 6.96 points lower and 1.02 points lower than XLY’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 Gemini - the simplest and cheapest broker I've found! Click here to read more (link to Gemini).

Performance

Annual Returns

SCHD vs. XLY - Annual Returns

Year SCHD XLY
2020 15.11% 29.66%
2019 27.28% 28.43%
2018 -5.46% 1.66%
2017 20.88% 22.77%
2016 16.25% 5.87%
2015 -0.21% 9.93%
2014 11.66% 9.49%
2013 32.9% 42.74%
2012 11.4% 23.6%
2011 0.0% 5.98%
2010 0.0% 27.36%

SCHD had its best year in 2013 with an annual return of 32.9%. SCHD’s worst year over the past decade yielded -5.46% and occurred in 2018. In most years the Schwab U.S. Dividend Equity ETF provided moderate returns such as in 2012, 2014, and 2020 where annual returns amounted to 11.4%, 11.66%, and 15.11% respectively.

The year 2013 was the strongest year for XLY, returning 42.74% on an annual basis. The poorest year for XLY in the last ten years was 2018, with a yield of 1.66%. Most years the Consumer Discretionary Select Sector SPDR Fund has given investors modest returns, such as in 2015, 2017, and 2012, when gains were 9.93%, 22.77%, and 23.6% respectively.

Portfolio Growth

SCHD vs. XLY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
SCHD $10,000 $28,823 14.80%
XLY $10,000 $37,802 18.86%

A $10,000 investment in SCHD would have resulted in a final balance of $28,823. This is a profit of $18,823 over 8 years and amounts to a compound annual growth rate (CAGR) of 14.80%.

With a $10,000 investment in XLY, the end total would have been $37,802. This equates to a $27,802 profit over 8 years and a compound annual growth rate (CAGR) of 18.86%.

SCHD’s CAGR is 4.06 percentage points lower than that of XLY and as a result, would have yielded $8,979 less on a $10,000 investment. Thus, SCHD performed worse than XLY by 4.06% 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 Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

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

Leave a Reply