XLC vs. TLT: What’s The Difference?

The Communication Services Select Sector SPDR Fund (XLC) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. XLC is a SPDR State Street Global Advisors Communications fund and TLT is a iShares Long Government fund. So, what’s the difference between XLC and TLT? And which fund is better?

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

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

Summary

XLC TLT
Name Communication Services Select Sector SPDR Fund iShares 20+ Year Treasury Bond ETF
Category Communications Long Government
Issuer SPDR State Street Global Advisors iShares
AUM 14.09B 15.15B
Avg. Return 29.04% 9.00%
Div. Yield 0.62% 1.5%
Expense Ratio 0.12% 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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.

XLC’s dividend yield is 0.88% lower than that of TLT (0.62% vs. 1.5%). Also, XLC yielded on average 20.04% more per year over the past decade (29.04% vs. 9.00%). The expense ratio of XLC is 0.03 percentage points lower than TLT’s (0.12% vs. 0.15%).

Fund Composition

Holdings

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%.

TLT - Holdings

TLT Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

TLT’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.

Risk Analysis

XLC TLT
Mean Return 0 0.63
R-squared 0 68.76
Std. Deviation 0 12.76
Alpha 0 -2.83
Beta 0 3.54
Sharpe Ratio 0 0.55
Treynor Ratio 0 1.82

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

The iShares 20+ Year Treasury Bond ETF (TLT) has a Beta of 3.54 with a Mean Return of 0.63 and a R-squared of 68.76. Its Treynor Ratio is 1.82 while TLT’s Standard Deviation is 12.76. Furthermore, the fund has a Sharpe Ratio of 0.55 and a Alpha of -2.83.

XLC’s Mean Return is 0.63 points lower than that of TLT and its R-squared is 68.76 points lower. With a Standard Deviation of 0, XLC is slightly less volatile than TLT. The Alpha and Beta of XLC are 2.83 points higher and 3.54 points lower than TLT’s Alpha and Beta.

Performance

Annual Returns

XLC vs. TLT - Annual Returns

Year XLC TLT
2020 26.85% 17.92%
2019 31.22% 14.93%
2018 0.0% -2.07%
2017 0.0% 8.92%
2016 0.0% 1.36%
2015 0.0% -1.65%
2014 0.0% 27.35%
2013 0.0% -13.91%
2012 0.0% 3.25%
2011 0.0% 33.6%
2010 0.0% 9.25%

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 TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.

Portfolio Growth

XLC vs. TLT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLC $10,000 $16,645 29.04%
TLT $10,000 $13,552 9.00%

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 TLT, the end total would have been $13,552. This equates to a $3,552 profit over 2 years and a compound annual growth rate (CAGR) of 9.00%.

XLC’s CAGR is 20.04 percentage points higher than that of TLT and as a result, would have yielded $3,093 more on a $10,000 investment. Thus, XLC outperformed TLT by 20.04% annually.


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