XLF vs. MBB: What’s The Difference?

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

The expense ratio of XLF is 0.06 percentage points higher than MBB’s (0.12% vs. 0.06%). XLF also has a high exposure to the financial services sector while MBB is mostly comprised of AAA bonds. Overall, XLF has provided higher returns than MBB over the past ten years.

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

Summary

XLF MBB
Name Financial Select Sector SPDR Fund iShares MBS ETF
Category Financial Intermediate Government
Issuer SPDR State Street Global Advisors iShares
AUM 40.81B 25.69B
Avg. Return 12.17% 3.08%
Div. Yield 1.57% 1.88%
Expense Ratio 0.12% 0.06%

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 MBS ETF (MBB) is a Intermediate Government fund that is issued by iShares. It currently has 25.69B total assets under management and has yielded an average annual return of 3.08% over the past 10 years. The fund has a dividend yield of 1.88% with an expense ratio of 0.06%.

XLF’s dividend yield is 0.31% lower than that of MBB (1.57% vs. 1.88%). Also, XLF yielded on average 9.09% more per year over the past decade (12.17% vs. 3.08%). The expense ratio of XLF is 0.06 percentage points higher than MBB’s (0.12% vs. 0.06%).

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%.

MBB - Holdings

MBB Bond Sectors Weight
AAA 99.51%
Others 0.49%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

MBB’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.51%, 0.49%, 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 MBB
Mean Return 1.21 0.2
R-squared 73.26 74.38
Std. Deviation 18.86 2.12
Alpha 2.63 0.14
Beta 1.15 0.6
Sharpe Ratio 0.74 0.87
Treynor Ratio 11.25 3.02

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

The iShares MBS ETF (MBB) has a Treynor Ratio of 3.02 with a Alpha of 0.14 and a R-squared of 74.38. Its Standard Deviation is 2.12 while MBB’s Beta is 0.6. Furthermore, the fund has a Mean Return of 0.2 and a Sharpe Ratio of 0.87.

XLF’s Mean Return is 1.01 points higher than that of MBB and its R-squared is 1.12 points lower. With a Standard Deviation of 18.86, XLF is slightly more volatile than MBB. The Alpha and Beta of XLF are 2.49 points higher and 0.55 points higher than MBB’s Alpha and Beta.

Performance

Annual Returns

XLF vs. MBB - Annual Returns

Year XLF MBB
2020 -1.68% 4.03%
2019 31.88% 6.27%
2018 -13.09% 0.81%
2017 22.03% 2.37%
2016 22.55% 1.28%
2015 -1.6% 1.28%
2014 15.02% 6.16%
2013 35.37% -1.92%
2012 28.53% 2.23%
2011 -17.16% 5.88%
2010 11.97% 5.44%

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 MBB, returning 6.27% on an annual basis. The poorest year for MBB in the last ten years was 2013, with a yield of -1.92%. Most years the iShares MBS ETF has given investors modest returns, such as in 2012, 2017, and 2020, when gains were 2.23%, 2.37%, and 4.03% respectively.

Portfolio Growth

XLF vs. MBB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLF $10,000 $30,782 12.17%
MBB $10,000 $13,906 3.08%

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 MBB, the end total would have been $13,906. This equates to a $3,906 profit over 11 years and a compound annual growth rate (CAGR) of 3.08%.

XLF’s CAGR is 9.09 percentage points higher than that of MBB and as a result, would have yielded $16,876 more on a $10,000 investment. Thus, XLF outperformed MBB by 9.09% annually.


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