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XLK vs. EMB: What’s The Difference?

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

The expense ratio of XLK is 0.27 percentage points lower than EMB’s (0.12% vs. 0.39%). XLK also has a high exposure to the technology sector while EMB is mostly comprised of BBB bonds. Overall, XLK has provided higher returns than EMB over the past ten years.

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

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Summary

XLKEMB
NameTechnology Select Sector SPDR FundiShares J.P. Morgan USD Emerging Markets Bond ETF
CategoryTechnologyEmerging Markets Bond
IssuerSPDR State Street Global AdvisorsiShares
AUM42.3B19.76B
Avg. Return20.02%6.43%
Div. Yield0.73%3.85%
Expense Ratio0.12%0.39%

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 J.P. Morgan USD Emerging Markets Bond ETF (EMB) is a Emerging Markets Bond fund that is issued by iShares. It currently has 19.76B total assets under management and has yielded an average annual return of 6.43% over the past 10 years. The fund has a dividend yield of 3.85% with an expense ratio of 0.39%.

XLK’s dividend yield is 3.12% lower than that of EMB (0.73% vs. 3.85%). Also, XLK yielded on average 13.59% more per year over the past decade (20.02% vs. 6.43%). The expense ratio of XLK is 0.27 percentage points lower than EMB’s (0.12% vs. 0.39%).

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Fund Composition

Holdings

XLK - Holdings

XLK HoldingsWeight
Apple Inc21.45%
Microsoft Corp20.37%
NVIDIA Corp4.98%
Visa Inc Class A3.95%
PayPal Holdings Inc3.42%
Mastercard Inc A3.19%
Adobe Inc2.8%
Salesforce.com Inc2.26%
Intel Corp2.26%
Cisco Systems Inc2.23%

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%.

EMB - Holdings

EMB Bond SectorsWeight
BBB33.79%
B21.97%
BB16.92%
A13.67%
AA7.97%
Below B4.49%
Others1.11%
AAA0.09%
US Government0.0%

EMB’s Top Bond Sectors are ratings of BBB, B, BB, A, and AA at 33.79%, 21.97%, 16.92%, 13.67%, and 7.97%. The fund is less weighted towards Below B (4.49%), Others (1.11%), and AAA (0.09%) rated bonds.

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Risk Analysis

XLKEMB
Mean Return1.70.44
R-squared73.5623.34
Std. Deviation15.588.44
Alpha10.430.89
Beta0.951.36
Sharpe Ratio1.270.55
Treynor Ratio21.443.24

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

The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has a Standard Deviation of 8.44 with a Mean Return of 0.44 and a Sharpe Ratio of 0.55. Its R-squared is 23.34 while EMB’s Treynor Ratio is 3.24. Furthermore, the fund has a Alpha of 0.89 and a Beta of 1.36.

XLK’s Mean Return is 1.26 points higher than that of EMB and its R-squared is 50.22 points higher. With a Standard Deviation of 15.58, XLK is slightly more volatile than EMB. The Alpha and Beta of XLK are 9.54 points higher and 0.41 points lower than EMB’s Alpha and Beta.

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Performance

Annual Returns

XLK vs. EMB - Annual Returns

YearXLKEMB
202043.67%5.48%
201949.97%15.57%
2018-1.56%-5.67%
201734.27%9.98%
201614.81%9.41%
20155.62%0.43%
201417.75%6.69%
201325.98%-7.42%
201215.47%17.64%
20112.69%7.2%
201011.6%11.47%

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 2012 was the strongest year for EMB, returning 17.64% on an annual basis. The poorest year for EMB in the last ten years was 2013, with a yield of -7.42%. Most years the iShares J.P. Morgan USD Emerging Markets Bond ETF has given investors modest returns, such as in 2014, 2011, and 2016, when gains were 6.69%, 7.2%, and 9.41% respectively.

Portfolio Growth

XLK vs. EMB - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
XLK$10,000$67,79020.02%
EMB$10,000$19,2956.43%

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 EMB, the end total would have been $19,295. This equates to a $9,295 profit over 11 years and a compound annual growth rate (CAGR) of 6.43%.

XLK’s CAGR is 13.59 percentage points higher than that of EMB and as a result, would have yielded $48,495 more on a $10,000 investment. Thus, XLK outperformed EMB by 13.59% annually.


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