The Financial Select Sector SPDR Fund (XLF) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. XLF is a SPDR State Street Global Advisors Financial fund and TLT is a iShares Long Government fund. So, what’s the difference between XLF and TLT? And which fund is better?
The expense ratio of XLF is 0.03 percentage points lower than TLT’s (0.12% vs. 0.15%). XLF also has a high exposure to the financial services sector while TLT is mostly comprised of AAA bonds. Overall, XLF has provided higher returns than TLT over the past ten years.
In this article, we’ll compare XLF vs. TLT. We’ll look at fund composition and performance, as well as at their annual returns and holdings. Moreover, I’ll also discuss XLF’s and TLT’s industry exposure, risk metrics, and portfolio growth and examine how these affect their overall returns.
Summary
| XLF | TLT | |
| Name | Financial Select Sector SPDR Fund | iShares 20+ Year Treasury Bond ETF |
| Category | Financial | Long Government |
| Issuer | SPDR State Street Global Advisors | iShares |
| AUM | 40.81B | 15.15B |
| Avg. Return | 12.17% | 9.00% |
| Div. Yield | 1.57% | 1.5% |
| 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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.
XLF’s dividend yield is 0.07% higher than that of TLT (1.57% vs. 1.5%). Also, XLF yielded on average 3.17% more per year over the past decade (12.17% vs. 9.00%). The expense ratio of XLF is 0.03 percentage points lower than TLT’s (0.12% vs. 0.15%).
Fund Composition
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%.
| TLT 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% |
TLT’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 | TLT | |
| Mean Return | 1.21 | 0.63 |
| R-squared | 73.26 | 68.76 |
| Std. Deviation | 18.86 | 12.76 |
| Alpha | 2.63 | -2.83 |
| Beta | 1.15 | 3.54 |
| Sharpe Ratio | 0.74 | 0.55 |
| Treynor Ratio | 11.25 | 1.82 |
The Financial Select Sector SPDR Fund (XLF) has a Beta of 1.15 with a Treynor Ratio of 11.25 and a Mean Return of 1.21. Its Sharpe Ratio is 0.74 while XLF’s Alpha is 2.63. Furthermore, the fund has a R-squared of 73.26 and a Standard Deviation of 18.86.
The iShares 20+ Year Treasury Bond ETF (TLT) has a Beta of 3.54 with a Standard Deviation of 12.76 and a Mean Return of 0.63. Its Treynor Ratio is 1.82 while TLT’s Sharpe Ratio is 0.55. Furthermore, the fund has a R-squared of 68.76 and a Alpha of -2.83.
XLF’s Mean Return is 0.58 points higher than that of TLT and its R-squared is 4.50 points higher. With a Standard Deviation of 18.86, XLF is slightly more volatile than TLT. The Alpha and Beta of XLF are 5.46 points higher and 2.39 points lower than TLT’s Alpha and Beta.
Performance
Annual Returns
| Year | XLF | TLT |
| 2020 | -1.68% | 17.92% |
| 2019 | 31.88% | 14.93% |
| 2018 | -13.09% | -2.07% |
| 2017 | 22.03% | 8.92% |
| 2016 | 22.55% | 1.36% |
| 2015 | -1.6% | -1.65% |
| 2014 | 15.02% | 27.35% |
| 2013 | 35.37% | -13.91% |
| 2012 | 28.53% | 3.25% |
| 2011 | -17.16% | 33.6% |
| 2010 | 11.97% | 9.25% |
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 2011 was the strongest year for TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| XLF | $10,000 | $30,782 | 12.17% |
| TLT | $10,000 | $23,809 | 9.00% |
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 TLT, the end total would have been $23,809. This equates to a $13,809 profit over 11 years and a compound annual growth rate (CAGR) of 9.00%.
XLF’s CAGR is 3.17 percentage points higher than that of TLT and as a result, would have yielded $6,973 more on a $10,000 investment. Thus, XLF outperformed TLT by 3.17% annually.
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