XLK vs. EEM: What’s The Difference?

The Technology Select Sector SPDR Fund (XLK) and the iShares MSCI Emerging Markets ETF (EEM) are both among the Top 100 ETFs. XLK is a SPDR State Street Global Advisors Technology fund and EEM is a iShares Diversified Emerging Mkts fund. So, what’s the difference between XLK and EEM? And which fund is better?

The expense ratio of XLK is 0.56 percentage points lower than EEM’s (0.12% vs. 0.68%). XLK also has a higher exposure to the technology sector and a lower standard deviation. Overall, XLK has provided higher returns than EEM over the past ten years.

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

Summary

XLK EEM
Name Technology Select Sector SPDR Fund iShares MSCI Emerging Markets ETF
Category Technology Diversified Emerging Mkts
Issuer SPDR State Street Global Advisors iShares
AUM 42.3B 30.33B
Avg. Return 20.02% 5.47%
Div. Yield 0.73% 1.48%
Expense Ratio 0.12% 0.68%

The Technology Select Sector SPDR Fund (XLK) is a Technology fund that is issued by SPDR State Street Global Advisors. It currently has 42.3B total assets under management and has yielded an average annual return of 20.02% over the past 10 years. The fund has a dividend yield of 0.73% with an expense ratio of 0.12%.

The iShares MSCI Emerging Markets ETF (EEM) is a Diversified Emerging Mkts fund that is issued by iShares. It currently has 30.33B total assets under management and has yielded an average annual return of 5.47% over the past 10 years. The fund has a dividend yield of 1.48% with an expense ratio of 0.68%.

XLK’s dividend yield is 0.75% lower than that of EEM (0.73% vs. 1.48%). Also, XLK yielded on average 14.55% more per year over the past decade (20.02% vs. 5.47%). The expense ratio of XLK is 0.56 percentage points lower than EEM’s (0.12% vs. 0.68%).

Fund Composition

Industry Exposure

XLK vs. EEM - Industry Exposure

XLK EEM
Technology 87.54% 21.36%
Industrials 1.75% 4.61%
Energy 0.0% 5.17%
Communication Services 0.0% 11.76%
Utilities 0.0% 1.99%
Healthcare 0.0% 5.06%
Consumer Defensive 0.0% 5.45%
Real Estate 0.0% 1.98%
Financial Services 10.71% 18.39%
Consumer Cyclical 0.0% 15.16%
Basic Materials 0.0% 9.07%

The Technology Select Sector SPDR Fund (XLK) has the most exposure to the Technology sector at 87.54%. This is followed by Financial Services and Industrials at 10.71% and 1.75% 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.

XLK’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 1.75%.

The iShares MSCI Emerging Markets ETF (EEM) has the most exposure to the Technology sector at 21.36%. This is followed by Financial Services and Consumer Cyclical at 18.39% and 15.16% respectively. Utilities (1.99%), Industrials (4.61%), and Healthcare (5.06%) only make up 11.66% of the fund’s total assets.

EEM’s mid-section with moderate exposure is comprised of Energy, Consumer Defensive, Basic Materials, Communication Services, and Consumer Cyclical stocks at 5.17%, 5.45%, 9.07%, 11.76%, and 15.16%.

XLK is 66.18% more exposed to the Technology sector than EEM (87.54% vs 21.36%). XLK’s exposure to Financial Services and Industrials stocks is 7.68% lower and 2.86% lower respectively (10.71% vs. 18.39% and 1.75% vs. 4.61%). In total, Consumer Cyclical, Real Estate, and Consumer Defensive also make up 22.59% less of the fund’s holdings compared to EEM (0.00% vs. 22.59%).

Holdings

XLK - Holdings

XLK Holdings Weight
Apple Inc 21.45%
Microsoft Corp 20.37%
NVIDIA Corp 4.98%
Visa Inc Class A 3.95%
PayPal Holdings Inc 3.42%
Mastercard Inc A 3.19%
Adobe Inc 2.8%
Salesforce.com Inc 2.26%
Intel Corp 2.26%
Cisco Systems Inc 2.23%

XLK’s Top Holdings are Apple Inc, Microsoft Corp, NVIDIA Corp, Visa Inc Class A, and PayPal Holdings Inc at 21.45%, 20.37%, 4.98%, 3.95%, and 3.42%.

Mastercard Inc A (3.19%), Adobe Inc (2.8%), and Salesforce.com Inc (2.26%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the XLK’s holdings at 2.26% and 2.23%.

EEM - Holdings

EEM Holdings Weight
Taiwan Semiconductor Manufacturing Co Ltd 6.36%
Alibaba Group Holding Ltd Ordinary Shares 4.58%
Tencent Holdings Ltd 4.41%
Samsung Electronics Co Ltd 4.05%
Meituan 1.24%
Vale SA 1.04%
Naspers Ltd Class N 1.04%
Reliance Industries Ltd Shs Dematerialised 0.97%
Infosys Ltd 0.92%
China Construction Bank Corp Class H 0.83%

EEM’s Top Holdings are Taiwan Semiconductor Manufacturing Co Ltd, Alibaba Group Holding Ltd Ordinary Shares, Tencent Holdings Ltd, Samsung Electronics Co Ltd, and Meituan at 6.36%, 4.58%, 4.41%, 4.05%, and 1.24%.

Vale SA (1.04%), Naspers Ltd Class N (1.04%), and Reliance Industries Ltd Shs Dematerialised (0.97%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the EEM’s holdings at 0.92% and 0.83%.

Risk Analysis

XLK EEM
Mean Return 1.7 0.38
R-squared 73.56 83.5
Std. Deviation 15.58 17.79
Alpha 10.43 -2.33
Beta 0.95 1.08
Sharpe Ratio 1.27 0.22
Treynor Ratio 21.44 2.22

The Technology Select Sector SPDR Fund (XLK) has a Treynor Ratio of 21.44 with a Beta of 0.95 and a Mean Return of 1.7. Its Sharpe Ratio is 1.27 while XLK’s Alpha is 10.43. Furthermore, the fund has a Standard Deviation of 15.58 and a R-squared of 73.56.

The iShares MSCI Emerging Markets ETF (EEM) has a R-squared of 83.5 with a Alpha of -2.33 and a Standard Deviation of 17.79. Its Mean Return is 0.38 while EEM’s Treynor Ratio is 2.22. Furthermore, the fund has a Sharpe Ratio of 0.22 and a Beta of 1.08.

XLK’s Mean Return is 1.32 points higher than that of EEM and its R-squared is 9.94 points lower. With a Standard Deviation of 15.58, XLK is slightly less volatile than EEM. The Alpha and Beta of XLK are 12.76 points higher and 0.13 points lower than EEM’s Alpha and Beta.

Performance

Annual Returns

XLK vs. EEM - Annual Returns

Year XLK EEM
2020 43.67% 17.56%
2019 49.97% 17.67%
2018 -1.56% -14.98%
2017 34.27% 36.42%
2016 14.81% 10.51%
2015 5.62% -15.41%
2014 17.75% -2.82%
2013 25.98% -3.14%
2012 15.47% 17.32%
2011 2.69% -18.87%
2010 11.6% 15.93%

XLK had its best year in 2019 with an annual return of 49.97%. XLK’s worst year over the past decade yielded -1.56% and occurred in 2018. In most years the Technology Select Sector SPDR Fund provided moderate returns such as in 2016, 2012, and 2014 where annual returns amounted to 14.81%, 15.47%, and 17.75% respectively.

The year 2017 was the strongest year for EEM, returning 36.42% on an annual basis. The poorest year for EEM in the last ten years was 2011, with a yield of -18.87%. Most years the iShares MSCI Emerging Markets ETF has given investors modest returns, such as in 2014, 2016, and 2010, when gains were -2.82%, 10.51%, and 15.93% respectively.

Portfolio Growth

XLK vs. EEM - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLK $10,000 $67,790 20.02%
EEM $10,000 $15,578 5.47%

A $10,000 investment in XLK would have resulted in a final balance of $67,790. This is a profit of $57,790 over 11 years and amounts to a compound annual growth rate (CAGR) of 20.02%.

With a $10,000 investment in EEM, the end total would have been $15,578. This equates to a $5,578 profit over 11 years and a compound annual growth rate (CAGR) of 5.47%.

XLK’s CAGR is 14.55 percentage points higher than that of EEM and as a result, would have yielded $52,212 more on a $10,000 investment. Thus, XLK outperformed EEM by 14.55% annually.


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