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SHY vs. XLI: What’s The Difference?

The iShares 1-3 Year Treasury Bond ETF (SHY) and the Industrial Select Sector SPDR Fund (XLI) are both among the Top 100 ETFs. SHY is a iShares Short Government fund and XLI is a SPDR State Street Global Advisors Industrials fund. So, what’s the difference between SHY and XLI? And which fund is better?

The expense ratio of SHY is 0.03 percentage points higher than XLI’s (0.15% vs. 0.12%). SHY is mostly comprised of AAA bonds while XLI has a high exposure to the industrials sector. Overall, SHY has provided lower returns than XLI over the past 11 years.

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

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Summary

SHYXLI
NameiShares 1-3 Year Treasury Bond ETFIndustrial Select Sector SPDR Fund
CategoryShort GovernmentIndustrials
IssueriSharesSPDR State Street Global Advisors
AUM19.51B19.33B
Avg. Return1.27%14.44%
Div. Yield0.46%1.25%
Expense Ratio0.15%0.12%

The iShares 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

The Industrial Select Sector SPDR Fund (XLI) is a Industrials fund that is issued by SPDR State Street Global Advisors. It currently has 19.33B total assets under management and has yielded an average annual return of 14.44% over the past 10 years. The fund has a dividend yield of 1.25% with an expense ratio of 0.12%.

SHY’s dividend yield is 0.79% lower than that of XLI (0.46% vs. 1.25%). Also, SHY yielded on average 13.17% less per year over the past decade (1.27% vs. 14.44%). The expense ratio of SHY is 0.03 percentage points higher than XLI’s (0.15% vs. 0.12%).

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Fund Composition

Holdings

SHY - Holdings

SHY Bond SectorsWeight
AAA99.67%
Others0.33%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

XLI - Holdings

XLI HoldingsWeight
Honeywell International Inc4.9%
United Parcel Service Inc Class B4.84%
Union Pacific Corp4.7%
Boeing Co4.24%
Raytheon Technologies Corp4.16%
Caterpillar Inc3.84%
General Electric Co3.8%
3M Co3.7%
Deere & Co3.54%
Lockheed Martin Corp2.98%

XLI’s Top Holdings are Honeywell International Inc, United Parcel Service Inc Class B, Union Pacific Corp, Boeing Co, and Raytheon Technologies Corp at 4.9%, 4.84%, 4.7%, 4.24%, and 4.16%.

Caterpillar Inc (3.84%), General Electric Co (3.8%), and 3M Co (3.7%) have a slightly smaller but still significant weight. Deere & Co and Lockheed Martin Corp are also represented in the XLI’s holdings at 3.54% and 2.98%.

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Risk Analysis

SHYXLI
Mean Return0.091.14
R-squared39.1178.97
Std. Deviation0.8917.13
Alpha-0.032.38
Beta0.181.08
Sharpe Ratio0.540.76
Treynor Ratio2.611.34

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Sharpe Ratio of 0.54 with a Treynor Ratio of 2.6 and a R-squared of 39.11. Its Beta is 0.18 while SHY’s Mean Return is 0.09. Furthermore, the fund has a Alpha of -0.03 and a Standard Deviation of 0.89.

The Industrial Select Sector SPDR Fund (XLI) has a Beta of 1.08 with a R-squared of 78.97 and a Mean Return of 1.14. Its Sharpe Ratio is 0.76 while XLI’s Alpha is 2.38. Furthermore, the fund has a Standard Deviation of 17.13 and a Treynor Ratio of 11.34.

SHY’s Mean Return is 1.05 points lower than that of XLI and its R-squared is 39.86 points lower. With a Standard Deviation of 0.89, SHY is slightly less volatile than XLI. The Alpha and Beta of SHY are 2.41 points lower and 0.90 points lower than XLI’s Alpha and Beta.

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Performance

Annual Returns

SHY vs. XLI - Annual Returns

YearSHYXLI
20203.01%11.0%
20193.42%29.11%
20181.45%-13.1%
20170.27%23.85%
20160.75%19.93%
20150.43%-4.27%
20140.48%10.44%
20130.23%40.44%
20120.31%14.86%
20111.43%-1.01%
20102.23%27.62%

SHY had its best year in 2019 with an annual return of 3.42%. SHY’s worst year over the past decade yielded 0.23% and occurred in 2013. In most years the iShares 1-3 Year Treasury Bond ETF provided moderate returns such as in 2014, 2016, and 2011 where annual returns amounted to 0.48%, 0.75%, and 1.43% respectively.

The year 2013 was the strongest year for XLI, returning 40.44% on an annual basis. The poorest year for XLI in the last ten years was 2018, with a yield of -13.1%. Most years the Industrial Select Sector SPDR Fund has given investors modest returns, such as in 2020, 2012, and 2016, when gains were 11.0%, 14.86%, and 19.93% respectively.

Portfolio Growth

SHY vs. XLI - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
SHY$10,000$11,4861.27%
XLI$10,000$39,85314.44%

A $10,000 investment in SHY would have resulted in a final balance of $11,486. This is a profit of $1,486 over 11 years and amounts to a compound annual growth rate (CAGR) of 1.27%.

With a $10,000 investment in XLI, the end total would have been $39,853. This equates to a $29,853 profit over 11 years and a compound annual growth rate (CAGR) of 14.44%.

SHY’s CAGR is 13.17 percentage points lower than that of XLI and as a result, would have yielded $28,367 less on a $10,000 investment. Thus, SHY performed worse than XLI by 13.17% annually.


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