XLF vs. EEM: What’s The Difference?

The Financial Select Sector SPDR Fund (XLF) and the iShares MSCI Emerging Markets ETF (EEM) are both among the Top 100 ETFs. XLF is a SPDR State Street Global Advisors Financial fund and EEM is a iShares Diversified Emerging Mkts fund. So, what’s the difference between XLF and EEM? And which fund is better?

The expense ratio of XLF is 0.56 percentage points lower than EEM’s (0.12% vs. 0.68%). XLF also has a higher exposure to the financial services sector and a higher standard deviation. Overall, XLF has provided higher returns than EEM over the past ten years.

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

Summary

XLF EEM
Name Financial Select Sector SPDR Fund iShares MSCI Emerging Markets ETF
Category Financial Diversified Emerging Mkts
Issuer SPDR State Street Global Advisors iShares
AUM 40.81B 30.33B
Avg. Return 12.17% 5.47%
Div. Yield 1.57% 1.48%
Expense Ratio 0.12% 0.68%

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 iShares MSCI Emerging Markets ETF (EEM) is a Diversified Emerging Mkts fund that is issued by iShares. It currently has 30.33B total assets under management and has yielded an average annual return of 5.47% over the past 10 years. The fund has a dividend yield of 1.48% with an expense ratio of 0.68%.

XLF’s dividend yield is 0.09% higher than that of EEM (1.57% vs. 1.48%). Also, XLF yielded on average 6.69% more per year over the past decade (12.17% vs. 5.47%). The expense ratio of XLF is 0.56 percentage points lower than EEM’s (0.12% vs. 0.68%).

Fund Composition

Industry Exposure

XLF vs. EEM - Industry Exposure

XLF EEM
Technology 0.0% 21.36%
Industrials 0.0% 4.61%
Energy 0.0% 5.17%
Communication Services 0.0% 11.76%
Utilities 0.0% 1.99%
Healthcare 0.0% 5.06%
Consumer Defensive 0.0% 5.45%
Real Estate 0.0% 1.98%
Financial Services 100.0% 18.39%
Consumer Cyclical 0.0% 15.16%
Basic Materials 0.0% 9.07%

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 iShares MSCI Emerging Markets ETF (EEM) has the most exposure to the Technology sector at 21.36%. This is followed by Financial Services and Consumer Cyclical at 18.39% and 15.16% respectively. Utilities (1.99%), Industrials (4.61%), and Healthcare (5.06%) only make up 11.66% of the fund’s total assets.

EEM’s mid-section with moderate exposure is comprised of Energy, Consumer Defensive, Basic Materials, Communication Services, and Consumer Cyclical stocks at 5.17%, 5.45%, 9.07%, 11.76%, and 15.16%.

XLF is 81.61% more exposed to the Financial Services sector than EEM (100.0% vs 18.39%). XLF’s exposure to Technology and Industrials stocks is 21.36% lower and 4.61% lower respectively (0.0% vs. 21.36% and 0.0% vs. 4.61%). In total, Consumer Cyclical, Real Estate, and Consumer Defensive also make up 22.59% less of the fund’s holdings compared to EEM (0.00% vs. 22.59%).

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%.

EEM - Holdings

EEM Holdings Weight
Taiwan Semiconductor Manufacturing Co Ltd 6.36%
Alibaba Group Holding Ltd Ordinary Shares 4.58%
Tencent Holdings Ltd 4.41%
Samsung Electronics Co Ltd 4.05%
Meituan 1.24%
Vale SA 1.04%
Naspers Ltd Class N 1.04%
Reliance Industries Ltd Shs Dematerialised 0.97%
Infosys Ltd 0.92%
China Construction Bank Corp Class H 0.83%

EEM’s Top Holdings are Taiwan Semiconductor Manufacturing Co Ltd, Alibaba Group Holding Ltd Ordinary Shares, Tencent Holdings Ltd, Samsung Electronics Co Ltd, and Meituan at 6.36%, 4.58%, 4.41%, 4.05%, and 1.24%.

Vale SA (1.04%), Naspers Ltd Class N (1.04%), and Reliance Industries Ltd Shs Dematerialised (0.97%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the EEM’s holdings at 0.92% and 0.83%.

Risk Analysis

XLF EEM
Mean Return 1.21 0.38
R-squared 73.26 83.5
Std. Deviation 18.86 17.79
Alpha 2.63 -2.33
Beta 1.15 1.08
Sharpe Ratio 0.74 0.22
Treynor Ratio 11.25 2.22

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

The iShares MSCI Emerging Markets ETF (EEM) has a Mean Return of 0.38 with a R-squared of 83.5 and a Standard Deviation of 17.79. Its Beta is 1.08 while EEM’s Sharpe Ratio is 0.22. Furthermore, the fund has a Alpha of -2.33 and a Treynor Ratio of 2.22.

XLF’s Mean Return is 0.83 points higher than that of EEM and its R-squared is 10.24 points lower. With a Standard Deviation of 18.86, XLF is slightly more volatile than EEM. The Alpha and Beta of XLF are 4.96 points higher and 0.07 points higher than EEM’s Alpha and Beta.

Performance

Annual Returns

XLF vs. EEM - Annual Returns

Year XLF EEM
2020 -1.68% 17.56%
2019 31.88% 17.67%
2018 -13.09% -14.98%
2017 22.03% 36.42%
2016 22.55% 10.51%
2015 -1.6% -15.41%
2014 15.02% -2.82%
2013 35.37% -3.14%
2012 28.53% 17.32%
2011 -17.16% -18.87%
2010 11.97% 15.93%

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 2017 was the strongest year for EEM, returning 36.42% on an annual basis. The poorest year for EEM in the last ten years was 2011, with a yield of -18.87%. Most years the iShares MSCI Emerging Markets ETF has given investors modest returns, such as in 2014, 2016, and 2010, when gains were -2.82%, 10.51%, and 15.93% respectively.

Portfolio Growth

XLF vs. EEM - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLF $10,000 $30,782 12.17%
EEM $10,000 $15,578 5.47%

A $10,000 investment in XLF would have resulted in a final balance of $30,782. This is a profit of $20,782 over 11 years and amounts to a compound annual growth rate (CAGR) of 12.17%.

With a $10,000 investment in EEM, the end total would have been $15,578. This equates to a $5,578 profit over 11 years and a compound annual growth rate (CAGR) of 5.47%.

XLF’s CAGR is 6.69 percentage points higher than that of EEM and as a result, would have yielded $15,204 more on a $10,000 investment. Thus, XLF outperformed EEM by 6.69% annually.


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