XLE vs. HYG: What’s The Difference?

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.

Summary

XLE HYG
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
AUM 25.55B 20.03B
Avg. Return 1.28% 6.42%
Div. Yield 3.92% 4.44%
Expense Ratio 0.12% 0.48%

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%).

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Fund Composition

Holdings

XLE - Holdings

XLE Holdings Weight
Exxon Mobil Corp 23.7%
Chevron Corp 20.03%
ConocoPhillips 4.64%
EOG Resources Inc 4.46%
Schlumberger Ltd 4.43%
Marathon Petroleum Corp 4.17%
Pioneer Natural Resources Co 4.08%
Phillips 66 4.07%
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 - Holdings

HYG Bond Sectors Weight
BB 56.53%
B 31.27%
Below B 11.4%
BBB 0.61%
AAA 0.28%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.09%

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.

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Risk Analysis

XLE HYG
Mean Return 0.32 0.46
R-squared 61.84 4.1
Std. Deviation 27.52 6.96
Alpha -11.98 3.58
Beta 1.54 0.48
Sharpe Ratio 0.12 0.7
Treynor Ratio -0.4 10.01

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.

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Performance

Annual Returns

XLE vs. HYG - Annual Returns

Year XLE HYG
2020 -32.56% 4.12%
2019 11.87% 14.23%
2018 -18.1% -1.93%
2017 -1.01% 6.09%
2016 27.95% 13.92%
2015 -21.47% -5.55%
2014 -8.61% 2.0%
2013 26.16% 5.9%
2012 5.17% 13.83%
2011 2.98% 5.89%
2010 21.7% 12.07%

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.

Portfolio Growth

XLE vs. HYG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLE $10,000 $9,339 1.28%
HYG $10,000 $19,427 6.42%

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.


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