The Technology Select Sector SPDR Fund (XLK) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. XLK is a SPDR State Street Global Advisors Technology fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between XLK and HYG? And which fund is better?
The expense ratio of XLK is 0.36 percentage points lower than HYG’s (0.12% vs. 0.48%). XLK also has a high exposure to the technology sector while HYG is mostly comprised of BB bonds. Overall, XLK has provided higher returns than HYG over the past ten years.
In this article, we’ll compare XLK vs. HYG. We’ll look at industry exposure and holdings, as well as at their performance and annual returns. Moreover, I’ll also discuss XLK’s and HYG’s fund composition, risk metrics, and portfolio growth and examine how these affect their overall returns.
|Name||Technology Select Sector SPDR Fund||iShares iBoxx $ High Yield Corporate Bond ETF|
|Category||Technology||High Yield Bond|
|Issuer||SPDR State Street Global Advisors||iShares|
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 iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.
XLK’s dividend yield is 3.71% lower than that of HYG (0.73% vs. 4.44%). Also, XLK yielded on average 13.61% more per year over the past decade (20.02% vs. 6.42%). The expense ratio of XLK is 0.36 percentage points lower than HYG’s (0.12% vs. 0.48%).
|Visa Inc Class A||3.95%|
|PayPal Holdings Inc||3.42%|
|Mastercard Inc A||3.19%|
|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%.
|HYG Bond Sectors||Weight|
HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
The Technology Select Sector SPDR Fund (XLK) has a Alpha of 10.43 with a Mean Return of 1.7 and a R-squared of 73.56. Its Standard Deviation is 15.58 while XLK’s Treynor Ratio is 21.44. Furthermore, the fund has a Sharpe Ratio of 1.27 and a Beta of 0.95.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Mean Return of 0.46 with a Treynor Ratio of 10.01 and a Beta of 0.48. Its R-squared is 4.1 while HYG’s Sharpe Ratio is 0.7. Furthermore, the fund has a Standard Deviation of 6.96 and a Alpha of 3.58.
XLK’s Mean Return is 1.24 points higher than that of HYG and its R-squared is 69.46 points higher. With a Standard Deviation of 15.58, XLK is slightly more volatile than HYG. The Alpha and Beta of XLK are 6.85 points higher and 0.47 points higher than HYG’s Alpha and Beta.
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 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
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 HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.
XLK’s CAGR is 13.61 percentage points higher than that of HYG and as a result, would have yielded $48,363 more on a $10,000 investment. Thus, XLK outperformed HYG by 13.61% annually.
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