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XLC vs. IEF: What’s The Difference?

The Communication Services Select Sector SPDR Fund (XLC) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. XLC is a SPDR State Street Global Advisors Communications fund and IEF is a iShares Long Government fund. So, what’s the difference between XLC and IEF? And which fund is better?

The expense ratio of XLC is 0.03 percentage points lower than IEF’s (0.12% vs. 0.15%). XLC also has a high exposure to the communication services sector while IEF is mostly comprised of AAA bonds. Overall, XLC has provided higher returns than IEF over the past 2 years.

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

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Summary

XLCIEF
NameCommunication Services Select Sector SPDR FundiShares 7-10 Year Treasury Bond ETF
CategoryCommunicationsLong Government
IssuerSPDR State Street Global AdvisorsiShares
AUM14.09B13.44B
Avg. Return29.04%5.06%
Div. Yield0.62%0.84%
Expense Ratio0.12%0.15%

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%.

The iShares 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

XLC’s dividend yield is 0.22% lower than that of IEF (0.62% vs. 0.84%). Also, XLC yielded on average 23.97% more per year over the past decade (29.04% vs. 5.06%). The expense ratio of XLC is 0.03 percentage points lower than IEF’s (0.12% vs. 0.15%).

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Fund Composition

Holdings

XLC - Holdings

XLC HoldingsWeight
Facebook Inc A23.75%
Alphabet Inc A11.49%
Alphabet Inc Class C11.16%
Netflix Inc4.78%
Charter Communications Inc A4.65%
Comcast Corp Class A4.44%
T-Mobile US Inc4.41%
The Walt Disney Co4.39%
AT&T Inc4.35%
Verizon Communications Inc4.33%

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%.

IEF - Holdings

IEF Bond SectorsWeight
AAA100.0%
Others0.0%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

IEF’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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.

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Risk Analysis

XLCIEF
Mean Return00.32
R-squared077.56
Std. Deviation05.42
Alpha0-1.2
Beta01.59
Sharpe Ratio00.6
Treynor Ratio01.97

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

The iShares 7-10 Year Treasury Bond ETF (IEF) has a Standard Deviation of 5.42 with a Mean Return of 0.32 and a R-squared of 77.56. Its Treynor Ratio is 1.97 while IEF’s Beta is 1.59. Furthermore, the fund has a Sharpe Ratio of 0.6 and a Alpha of -1.2.

XLC’s Mean Return is 0.32 points lower than that of IEF and its R-squared is 77.56 points lower. With a Standard Deviation of 0, XLC is slightly less volatile than IEF. The Alpha and Beta of XLC are 1.20 points higher and 1.59 points lower than IEF’s Alpha and Beta.

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Performance

Annual Returns

XLC vs. IEF - Annual Returns

YearXLCIEF
202026.85%9.84%
201931.22%8.38%
20180.0%0.82%
20170.0%2.47%
20160.0%1.0%
20150.0%1.55%
20140.0%8.92%
20130.0%-6.12%
20120.0%4.06%
20110.0%15.46%
20100.0%9.29%

XLC had its best year in 2019 with an annual return of 31.22%. XLC’s worst year over the past decade yielded 0.0% and occurred in 2018. In most years the Communication Services Select Sector SPDR Fund provided moderate returns such as in 2014, 2013, and 2012 where annual returns amounted to 0.0%, 0.0%, and 0.0% respectively.

The year 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

XLC vs. IEF - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
XLC$10,000$16,64529.04%
IEF$10,000$11,9045.06%

A $10,000 investment in XLC would have resulted in a final balance of $16,645. This is a profit of $6,645 over 2 years and amounts to a compound annual growth rate (CAGR) of 29.04%.

With a $10,000 investment in IEF, the end total would have been $11,904. This equates to a $1,904 profit over 2 years and a compound annual growth rate (CAGR) of 5.06%.

XLC’s CAGR is 23.97 percentage points higher than that of IEF and as a result, would have yielded $4,741 more on a $10,000 investment. Thus, XLC outperformed IEF by 23.97% annually.


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