XLF vs. PFF: What’s The Difference?

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

The expense ratio of XLF is 0.34 percentage points lower than PFF’s (0.12% vs. 0.46%). XLF also has a higher exposure to the financial services sector and a higher standard deviation. Overall, XLF has provided higher returns than PFF over the past ten years.

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

Summary

XLF PFF
Name Financial Select Sector SPDR Fund iShares Preferred and Income Securities ETF
Category Financial Preferred Stock
Issuer SPDR State Street Global Advisors iShares
AUM 40.81B 19.8B
Avg. Return 12.17% 6.90%
Div. Yield 1.57% 4.47%
Expense Ratio 0.12% 0.46%

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 Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

XLF’s dividend yield is 2.90% lower than that of PFF (1.57% vs. 4.47%). Also, XLF yielded on average 5.27% more per year over the past decade (12.17% vs. 6.90%). The expense ratio of XLF is 0.34 percentage points lower than PFF’s (0.12% vs. 0.46%).

Fund Composition

Industry Exposure

XLF vs. PFF - Industry Exposure

XLF PFF
Technology 0.0% 0.0%
Industrials 0.0% 10.27%
Energy 0.0% 0.0%
Communication Services 0.0% 0.0%
Utilities 0.0% 81.81%
Healthcare 0.0% 3.54%
Consumer Defensive 0.0% 0.0%
Real Estate 0.0% 0.65%
Financial Services 100.0% 0.0%
Consumer Cyclical 0.0% 0.0%
Basic Materials 0.0% 3.74%

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 Preferred and Income Securities ETF (PFF) has the most exposure to the Utilities sector at 81.81%. This is followed by Industrials and Basic Materials at 10.27% and 3.74% respectively. Financial Services (0.0%), Consumer Defensive (0.0%), and Communication Services (0.0%) only make up 0.00% of the fund’s total assets.

PFF’s mid-section with moderate exposure is comprised of Energy, Technology, Real Estate, Healthcare, and Basic Materials stocks at 0.0%, 0.0%, 0.65%, 3.54%, and 3.74%.

XLF is 100.00% more exposed to the Financial Services sector than PFF (100.0% vs 0.0%). XLF’s exposure to Technology and Industrials stocks is 0.00% lower and 10.27% lower respectively (0.0% vs. 0.0% and 0.0% vs. 10.27%). In total, Consumer Cyclical, Real Estate, and Consumer Defensive also make up 0.65% less of the fund’s holdings compared to PFF (0.00% vs. 0.65%).

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%.

PFF - Holdings

PFF Holdings Weight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A 2.54%
BlackRock Cash Funds Treasury SL Agency 2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L- 1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L- 1.49%
ArcelorMittal S.A. 5.5% 1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A 1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B 1.14%
NextEra Energy Inc Unit 1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 1.08%
Avantor Inc Ser A 0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

Risk Analysis

XLF PFF
Mean Return 1.21 0.52
R-squared 73.26 9.39
Std. Deviation 18.86 7.87
Alpha 2.63 3.45
Beta 1.15 0.81
Sharpe Ratio 0.74 0.72
Treynor Ratio 11.25 6.79

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

The iShares Preferred and Income Securities ETF (PFF) has a Alpha of 3.45 with a Treynor Ratio of 6.79 and a Sharpe Ratio of 0.72. Its R-squared is 9.39 while PFF’s Beta is 0.81. Furthermore, the fund has a Standard Deviation of 7.87 and a Mean Return of 0.52.

XLF’s Mean Return is 0.69 points higher than that of PFF and its R-squared is 63.87 points higher. With a Standard Deviation of 18.86, XLF is slightly more volatile than PFF. The Alpha and Beta of XLF are 0.82 points lower and 0.34 points higher than PFF’s Alpha and Beta.

Performance

Annual Returns

XLF vs. PFF - Annual Returns

Year XLF PFF
2020 -1.68% 7.94%
2019 31.88% 15.62%
2018 -13.09% -4.77%
2017 22.03% 8.33%
2016 22.55% 1.26%
2015 -1.6% 4.62%
2014 15.02% 13.45%
2013 35.37% -0.59%
2012 28.53% 18.25%
2011 -17.16% -2.2%
2010 11.97% 13.96%

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 2012 was the strongest year for PFF, returning 18.25% on an annual basis. The poorest year for PFF in the last ten years was 2018, with a yield of -4.77%. Most years the iShares Preferred and Income Securities ETF has given investors modest returns, such as in 2015, 2020, and 2017, when gains were 4.62%, 7.94%, and 8.33% respectively.

Portfolio Growth

XLF vs. PFF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLF $10,000 $30,782 12.17%
PFF $10,000 $20,272 6.90%

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 PFF, the end total would have been $20,272. This equates to a $10,272 profit over 11 years and a compound annual growth rate (CAGR) of 6.90%.

XLF’s CAGR is 5.27 percentage points higher than that of PFF and as a result, would have yielded $10,510 more on a $10,000 investment. Thus, XLF outperformed PFF by 5.27% annually.


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