XLF vs. ARKK: What’s The Difference?

The Financial Select Sector SPDR Fund (XLF) and the ARK Innovation ETF (ARKK) are both among the Top 100 ETFs. XLF is a SPDR State Street Global Advisors Financial fund and ARKK is a ARK ETF Trust Mid-Cap Growth fund. So, what’s the difference between XLF and ARKK? And which fund is better?

The expense ratio of XLF is 0.63 percentage points lower than ARKK’s (0.12% vs. 0.75%). XLF also has a higher exposure to the financial services sector and a higher standard deviation. Overall, XLF has provided lower returns than ARKK over the past ten years.

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

Summary

XLF ARKK
Name Financial Select Sector SPDR Fund ARK Innovation ETF
Category Financial Mid-Cap Growth
Issuer SPDR State Street Global Advisors ARK ETF Trust
AUM 40.81B 25.52B
Avg. Return 12.17% 55.45%
Div. Yield 1.57% 0.0%
Expense Ratio 0.12% 0.75%

The Financial Select Sector SPDR Fund (XLF) is a Financial fund that is issued by SPDR State Street Global Advisors. It currently has 40.81B total assets under management and has yielded an average annual return of 12.17% over the past 10 years. The fund has a dividend yield of 1.57% with an expense ratio of 0.12%.

The ARK Innovation ETF (ARKK) is a Mid-Cap Growth fund that is issued by ARK ETF Trust. It currently has 25.52B total assets under management and has yielded an average annual return of 55.45% over the past 10 years. The fund has a dividend yield of 0.0% with an expense ratio of 0.75%.

XLF’s dividend yield is 1.57% higher than that of ARKK (1.57% vs. 0.0%). Also, XLF yielded on average 43.28% less per year over the past decade (12.17% vs. 55.45%). The expense ratio of XLF is 0.63 percentage points lower than ARKK’s (0.12% vs. 0.75%).

Fund Composition

Industry Exposure

XLF vs. ARKK - Industry Exposure

XLF ARKK
Technology 0.0% 30.5%
Industrials 0.0% 2.11%
Energy 0.0% 0.0%
Communication Services 0.0% 25.01%
Utilities 0.0% 0.0%
Healthcare 0.0% 29.47%
Consumer Defensive 0.0% 0.93%
Real Estate 0.0% 0.51%
Financial Services 100.0% 0.04%
Consumer Cyclical 0.0% 11.42%
Basic Materials 0.0% 0.0%

The Financial Select Sector SPDR Fund (XLF) has the most exposure to the Financial Services sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Real Estate (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

XLF’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

The ARK Innovation ETF (ARKK) has the most exposure to the Technology sector at 30.5%. This is followed by Healthcare and Communication Services at 29.47% and 25.01% respectively. Utilities (0.0%), Energy (0.0%), and Financial Services (0.04%) only make up 0.04% of the fund’s total assets.

ARKK’s mid-section with moderate exposure is comprised of Real Estate, Consumer Defensive, Industrials, Consumer Cyclical, and Communication Services stocks at 0.51%, 0.93%, 2.11%, 11.42%, and 25.01%.

XLF is 99.96% more exposed to the Financial Services sector than ARKK (100.0% vs 0.04%). XLF’s exposure to Technology and Industrials stocks is 30.50% lower and 2.11% lower respectively (0.0% vs. 30.5% and 0.0% vs. 2.11%). In total, Consumer Cyclical, Real Estate, and Consumer Defensive also make up 12.86% less of the fund’s holdings compared to ARKK (0.00% vs. 12.86%).

Holdings

XLF - Holdings

XLF Holdings Weight
Berkshire Hathaway Inc Class B 12.83%
JPMorgan Chase & Co 11.47%
Bank of America Corp 7.57%
Wells Fargo & Co 4.56%
Citigroup Inc 3.56%
Morgan Stanley 3.32%
Goldman Sachs Group Inc 3.15%
BlackRock Inc 3.02%
Charles Schwab Corp 2.66%
American Express Co 2.62%

XLF’s Top Holdings are Berkshire Hathaway Inc Class B, JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co, and Citigroup Inc at 12.83%, 11.47%, 7.57%, 4.56%, and 3.56%.

Morgan Stanley (3.32%), Goldman Sachs Group Inc (3.15%), and BlackRock Inc (3.02%) have a slightly smaller but still significant weight. Charles Schwab Corp and American Express Co are also represented in the XLF’s holdings at 2.66% and 2.62%.

ARKK - Holdings

ARKK Holdings Weight
Tesla Inc 9.56%
Roku Inc Class A 6.48%
Teladoc Health Inc 5.76%
Square Inc A 4.37%
Zoom Video Communications Inc 4.36%
Shopify Inc A 4.27%
Spotify Technology SA 3.68%
Twilio Inc A 3.66%
Coinbase Global Inc Ordinary Shares – Class A 3.65%
Unity Software Inc Ordinary Shares 3.41%

ARKK’s Top Holdings are Tesla Inc, Roku Inc Class A, Teladoc Health Inc, Square Inc A, and Zoom Video Communications Inc at 9.56%, 6.48%, 5.76%, 4.37%, and 4.36%.

Shopify Inc A (4.27%), Spotify Technology SA (3.68%), and Twilio Inc A (3.66%) have a slightly smaller but still significant weight. Coinbase Global Inc Ordinary Shares – Class A and Unity Software Inc Ordinary Shares are also represented in the ARKK’s holdings at 3.65% and 3.41%.

Risk Analysis

XLF ARKK
Mean Return 1.21 0
R-squared 73.26 0
Std. Deviation 18.86 0
Alpha 2.63 0
Beta 1.15 0
Sharpe Ratio 0.74 0
Treynor Ratio 11.25 0

The Financial Select Sector SPDR Fund (XLF) has a Treynor Ratio of 11.25 with a Alpha of 2.63 and a Mean Return of 1.21. Its R-squared is 73.26 while XLF’s Sharpe Ratio is 0.74. Furthermore, the fund has a Beta of 1.15 and a Standard Deviation of 18.86.

The ARK Innovation ETF (ARKK) has a R-squared of 0 with a Treynor Ratio of 0 and a Alpha of 0. Its Sharpe Ratio is 0 while ARKK’s Mean Return is 0. Furthermore, the fund has a Standard Deviation of 0 and a Beta of 0.

XLF’s Mean Return is 1.21 points higher than that of ARKK and its R-squared is 73.26 points higher. With a Standard Deviation of 18.86, XLF is slightly more volatile than ARKK. The Alpha and Beta of XLF are 2.63 points higher and 1.15 points higher than ARKK’s Alpha and Beta.

Performance

Annual Returns

XLF vs. ARKK - Annual Returns

Year XLF ARKK
2020 -1.68% 152.52%
2019 31.88% 35.73%
2018 -13.09% 3.58%
2017 22.03% 87.38%
2016 22.55% -1.96%
2015 -1.6% 3.76%
2014 15.02% 0.0%
2013 35.37% 0.0%
2012 28.53% 0.0%
2011 -17.16% 0.0%
2010 11.97% 0.0%

XLF had its best year in 2013 with an annual return of 35.37%. XLF’s worst year over the past decade yielded -17.16% and occurred in 2011. In most years the Financial Select Sector SPDR Fund provided moderate returns such as in 2010, 2014, and 2017 where annual returns amounted to 11.97%, 15.02%, and 22.03% respectively.

The year 2020 was the strongest year for ARKK, returning 152.52% on an annual basis. The poorest year for ARKK in the last ten years was 2016, with a yield of -1.96%. Most years the ARK Innovation ETF has given investors modest returns, such as in 2011, 2010, and 2018, when gains were 0.0%, 0.0%, and 3.58% respectively.

Portfolio Growth

XLF vs. ARKK - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLF $10,000 $16,852 12.17%
ARKK $10,000 $65,218 55.45%

A $10,000 investment in XLF would have resulted in a final balance of $16,852. This is a profit of $6,852 over 5 years and amounts to a compound annual growth rate (CAGR) of 12.17%.

With a $10,000 investment in ARKK, the end total would have been $65,218. This equates to a $55,218 profit over 5 years and a compound annual growth rate (CAGR) of 55.45%.

XLF’s CAGR is 43.28 percentage points lower than that of ARKK and as a result, would have yielded $48,366 less on a $10,000 investment. Thus, XLF performed worse than ARKK by 43.28% annually.


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