The Energy Select Sector SPDR Fund (XLE) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. XLE is a SPDR State Street Global Advisors Equity Energy fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between XLE and HYG? And which fund is better?
The expense ratio of XLE is 0.36 percentage points lower than HYG’s (0.12% vs. 0.48%). XLE also has a high exposure to the energy sector while HYG is mostly comprised of BB bonds. Overall, XLE has provided lower returns than HYG over the past 11 years.
In this article, we’ll compare XLE vs. HYG. We’ll look at holdings and portfolio growth, as well as at their risk metrics and industry exposure. Moreover, I’ll also discuss XLE’s and HYG’s fund composition, annual returns, and performance and examine how these affect their overall returns.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
|Name||Energy Select Sector SPDR Fund||iShares iBoxx $ High Yield Corporate Bond ETF|
|Category||Equity Energy||High Yield Bond|
|Issuer||SPDR State Street Global Advisors||iShares|
The Energy Select Sector SPDR Fund (XLE) is a Equity Energy fund that is issued by SPDR State Street Global Advisors. It currently has 25.55B total assets under management and has yielded an average annual return of 1.28% over the past 10 years. The fund has a dividend yield of 3.92% with an expense ratio of 0.12%.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.
XLE’s dividend yield is 0.52% lower than that of HYG (3.92% vs. 4.44%). Also, XLE yielded on average 5.14% less per year over the past decade (1.28% vs. 6.42%). The expense ratio of XLE is 0.36 percentage points lower than HYG’s (0.12% vs. 0.48%).
FYI: The best way I've found to invest is through M1 Finance. It's free and you even get an instant line of credit and 100$! Have a look here (link to M1 Finance).
|Exxon Mobil Corp||23.7%|
|EOG Resources Inc||4.46%|
|Marathon Petroleum Corp||4.17%|
|Pioneer Natural Resources Co||4.08%|
|Kinder Morgan Inc Class P||3.85%|
|Williams Companies Inc||3.5%|
XLE’s Top Holdings are Exxon Mobil Corp, Chevron Corp, ConocoPhillips, EOG Resources Inc, and Schlumberger Ltd at 23.7%, 20.03%, 4.64%, 4.46%, and 4.43%.
Marathon Petroleum Corp (4.17%), Pioneer Natural Resources Co (4.08%), and Phillips 66 (4.07%) have a slightly smaller but still significant weight. Kinder Morgan Inc Class P and Williams Companies Inc are also represented in the XLE’s holdings at 3.85% and 3.5%.
|HYG Bond Sectors||Weight|
HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
The Energy Select Sector SPDR Fund (XLE) has a Beta of 1.54 with a Standard Deviation of 27.52 and a Sharpe Ratio of 0.12. Its R-squared is 61.84 while XLE’s Treynor Ratio is -0.4. Furthermore, the fund has a Alpha of -11.98 and a Mean Return of 0.32.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a R-squared of 4.1 with a Alpha of 3.58 and a Beta of 0.48. Its Standard Deviation is 6.96 while HYG’s Sharpe Ratio is 0.7. Furthermore, the fund has a Mean Return of 0.46 and a Treynor Ratio of 10.01.
XLE’s Mean Return is 0.14 points lower than that of HYG and its R-squared is 57.74 points higher. With a Standard Deviation of 27.52, XLE is slightly more volatile than HYG. The Alpha and Beta of XLE are 15.56 points lower and 1.06 points higher than HYG’s Alpha and Beta.
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).
XLE had its best year in 2016 with an annual return of 27.95%. XLE’s worst year over the past decade yielded -32.56% and occurred in 2020. In most years the Energy Select Sector SPDR Fund provided moderate returns such as in 2017, 2011, and 2012 where annual returns amounted to -1.01%, 2.98%, and 5.17% respectively.
The year 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in XLE would have resulted in a final balance of $9,339. This is a profit of $-661 over 11 years and amounts to a compound annual growth rate (CAGR) of 1.28%.
With a $10,000 investment in HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.
XLE’s CAGR is 5.14 percentage points lower than that of HYG and as a result, would have yielded $10,088 less on a $10,000 investment. Thus, XLE performed worse than HYG by 5.14% annually.
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)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) 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!
3) 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!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.