XLF vs. HYG: What’s The Difference?

The Financial Select Sector SPDR Fund (XLF) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. XLF is a SPDR State Street Global Advisors Financial fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between XLF and HYG? And which fund is better?

The expense ratio of XLF is 0.36 percentage points lower than HYG’s (0.12% vs. 0.48%). XLF also has a high exposure to the financial services sector while HYG is mostly comprised of BB bonds. Overall, XLF has provided higher returns than HYG over the past ten years.

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

Summary

XLF HYG
Name Financial Select Sector SPDR Fund iShares iBoxx $ High Yield Corporate Bond ETF
Category Financial High Yield Bond
Issuer SPDR State Street Global Advisors iShares
AUM 40.81B 20.03B
Avg. Return 12.17% 6.42%
Div. Yield 1.57% 4.44%
Expense Ratio 0.12% 0.48%

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 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%.

XLF’s dividend yield is 2.87% lower than that of HYG (1.57% vs. 4.44%). Also, XLF yielded on average 5.75% more per year over the past decade (12.17% vs. 6.42%). The expense ratio of XLF is 0.36 percentage points lower than HYG’s (0.12% vs. 0.48%).

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%.

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.

Risk Analysis

XLF HYG
Mean Return 1.21 0.46
R-squared 73.26 4.1
Std. Deviation 18.86 6.96
Alpha 2.63 3.58
Beta 1.15 0.48
Sharpe Ratio 0.74 0.7
Treynor Ratio 11.25 10.01

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

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a R-squared of 4.1 with a Standard Deviation of 6.96 and a Mean Return of 0.46. Its Treynor Ratio is 10.01 while HYG’s Beta is 0.48. Furthermore, the fund has a Alpha of 3.58 and a Sharpe Ratio of 0.7.

XLF’s Mean Return is 0.75 points higher than that of HYG and its R-squared is 69.16 points higher. With a Standard Deviation of 18.86, XLF is slightly more volatile than HYG. The Alpha and Beta of XLF are 0.95 points lower and 0.67 points higher than HYG’s Alpha and Beta.

Performance

Annual Returns

XLF vs. HYG - Annual Returns

Year XLF HYG
2020 -1.68% 4.12%
2019 31.88% 14.23%
2018 -13.09% -1.93%
2017 22.03% 6.09%
2016 22.55% 13.92%
2015 -1.6% -5.55%
2014 15.02% 2.0%
2013 35.37% 5.9%
2012 28.53% 13.83%
2011 -17.16% 5.89%
2010 11.97% 12.07%

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 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

XLF vs. HYG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLF $10,000 $30,782 12.17%
HYG $10,000 $19,427 6.42%

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 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%.

XLF’s CAGR is 5.75 percentage points higher than that of HYG and as a result, would have yielded $11,355 more on a $10,000 investment. Thus, XLF outperformed HYG by 5.75% annually.


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