XLF vs. SHY: What’s The Difference?

The Financial Select Sector SPDR Fund (XLF) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. XLF is a SPDR State Street Global Advisors Financial fund and SHY is a iShares Short Government fund. So, what’s the difference between XLF and SHY? And which fund is better?

The expense ratio of XLF is 0.03 percentage points lower than SHY’s (0.12% vs. 0.15%). XLF also has a high exposure to the financial services sector while SHY is mostly comprised of AAA bonds. Overall, XLF has provided higher returns than SHY over the past ten years.

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

Summary

XLF SHY
Name Financial Select Sector SPDR Fund iShares 1-3 Year Treasury Bond ETF
Category Financial Short Government
Issuer SPDR State Street Global Advisors iShares
AUM 40.81B 19.51B
Avg. Return 12.17% 1.27%
Div. Yield 1.57% 0.46%
Expense Ratio 0.12% 0.15%

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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

XLF’s dividend yield is 1.11% higher than that of SHY (1.57% vs. 0.46%). Also, XLF yielded on average 10.89% more per year over the past decade (12.17% vs. 1.27%). The expense ratio of XLF is 0.03 percentage points lower than SHY’s (0.12% vs. 0.15%).

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%.

SHY - Holdings

SHY Bond Sectors Weight
AAA 99.67%
Others 0.33%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 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 SHY
Mean Return 1.21 0.09
R-squared 73.26 39.11
Std. Deviation 18.86 0.89
Alpha 2.63 -0.03
Beta 1.15 0.18
Sharpe Ratio 0.74 0.54
Treynor Ratio 11.25 2.6

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

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Alpha of -0.03 with a R-squared of 39.11 and a Beta of 0.18. Its Treynor Ratio is 2.6 while SHY’s Sharpe Ratio is 0.54. Furthermore, the fund has a Mean Return of 0.09 and a Standard Deviation of 0.89.

XLF’s Mean Return is 1.12 points higher than that of SHY and its R-squared is 34.15 points higher. With a Standard Deviation of 18.86, XLF is slightly more volatile than SHY. The Alpha and Beta of XLF are 2.66 points higher and 0.97 points higher than SHY’s Alpha and Beta.

Performance

Annual Returns

XLF vs. SHY - Annual Returns

Year XLF SHY
2020 -1.68% 3.01%
2019 31.88% 3.42%
2018 -13.09% 1.45%
2017 22.03% 0.27%
2016 22.55% 0.75%
2015 -1.6% 0.43%
2014 15.02% 0.48%
2013 35.37% 0.23%
2012 28.53% 0.31%
2011 -17.16% 1.43%
2010 11.97% 2.23%

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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.

Portfolio Growth

XLF vs. SHY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLF $10,000 $30,782 12.17%
SHY $10,000 $11,486 1.27%

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 SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.

XLF’s CAGR is 10.89 percentage points higher than that of SHY and as a result, would have yielded $19,296 more on a $10,000 investment. Thus, XLF outperformed SHY by 10.89% annually.


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