XLF vs. GOVT: What’s The Difference?

The Financial Select Sector SPDR Fund (XLF) and the iShares U.S. Treasury Bond ETF (GOVT) are both among the Top 100 ETFs. XLF is a SPDR State Street Global Advisors Financial fund and GOVT is a iShares Intermediate Government fund. So, what’s the difference between XLF and GOVT? And which fund is better?

The expense ratio of XLF is 0.07 percentage points higher than GOVT’s (0.12% vs. 0.05%). XLF also has a high exposure to the financial services sector while GOVT is mostly comprised of AAA bonds. Overall, XLF has provided higher returns than GOVT over the past ten years.

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

Summary

XLF GOVT
Name Financial Select Sector SPDR Fund iShares U.S. Treasury Bond ETF
Category Financial Intermediate Government
Issuer SPDR State Street Global Advisors iShares
AUM 40.81B 17.07B
Avg. Return 12.17% 2.67%
Div. Yield 1.57% 1.0%
Expense Ratio 0.12% 0.05%

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 U.S. Treasury Bond ETF (GOVT) is a Intermediate Government fund that is issued by iShares. It currently has 17.07B total assets under management and has yielded an average annual return of 2.67% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.05%.

XLF’s dividend yield is 0.57% higher than that of GOVT (1.57% vs. 1.0%). Also, XLF yielded on average 9.49% more per year over the past decade (12.17% vs. 2.67%). The expense ratio of XLF is 0.07 percentage points higher than GOVT’s (0.12% vs. 0.05%).

Fund Composition

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%.

GOVT - Holdings

GOVT 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%

GOVT’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

XLF GOVT
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 Alpha of 2.63 with a Beta of 1.15 and a Mean Return of 1.21. Its Sharpe Ratio is 0.74 while XLF’s R-squared is 73.26. Furthermore, the fund has a Treynor Ratio of 11.25 and a Standard Deviation of 18.86.

The iShares U.S. Treasury Bond ETF (GOVT) has a Beta of 0 with a R-squared of 0 and a Treynor Ratio of 0. Its Mean Return is 0 while GOVT’s Sharpe Ratio is 0. Furthermore, the fund has a Alpha of 0 and a Standard Deviation of 0.

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

Performance

Annual Returns

XLF vs. GOVT - Annual Returns

Year XLF GOVT
2020 -1.68% 7.92%
2019 31.88% 6.71%
2018 -13.09% 0.74%
2017 22.03% 2.19%
2016 22.55% 0.92%
2015 -1.6% 0.76%
2014 15.02% 4.99%
2013 35.37% -2.84%
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 GOVT, returning 7.92% on an annual basis. The poorest year for GOVT in the last ten years was 2013, with a yield of -2.84%. Most years the iShares U.S. Treasury Bond ETF has given investors modest returns, such as in 2018, 2015, and 2016, when gains were 0.74%, 0.76%, and 0.92% respectively.

Portfolio Growth

XLF vs. GOVT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLF $10,000 $25,820 12.17%
GOVT $10,000 $12,297 2.67%

A $10,000 investment in XLF would have resulted in a final balance of $25,820. This is a profit of $15,820 over 8 years and amounts to a compound annual growth rate (CAGR) of 12.17%.

With a $10,000 investment in GOVT, the end total would have been $12,297. This equates to a $2,297 profit over 8 years and a compound annual growth rate (CAGR) of 2.67%.

XLF’s CAGR is 9.49 percentage points higher than that of GOVT and as a result, would have yielded $13,523 more on a $10,000 investment. Thus, XLF outperformed GOVT by 9.49% annually.


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