The Technology Select Sector SPDR Fund (XLK) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. XLK is a SPDR State Street Global Advisors Technology fund and IEF is a iShares Long Government fund. So, what’s the difference between XLK and IEF? And which fund is better?
The expense ratio of XLK is 0.03 percentage points lower than IEF’s (0.12% vs. 0.15%). XLK also has a high exposure to the technology sector while IEF is mostly comprised of AAA bonds. Overall, XLK has provided higher returns than IEF over the past ten years.
In this article, we’ll compare XLK vs. IEF. We’ll look at annual returns and industry exposure, as well as at their risk metrics and portfolio growth. Moreover, I’ll also discuss XLK’s and IEF’s performance, fund composition, and holdings and examine how these affect their overall returns.
Summary
| XLK | IEF | |
| Name | Technology Select Sector SPDR Fund | iShares 7-10 Year Treasury Bond ETF |
| Category | Technology | Long Government |
| Issuer | SPDR State Street Global Advisors | iShares |
| AUM | 42.3B | 13.44B |
| Avg. Return | 20.02% | 5.06% |
| Div. Yield | 0.73% | 0.84% |
| Expense Ratio | 0.12% | 0.15% |
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 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.
XLK’s dividend yield is 0.11% lower than that of IEF (0.73% vs. 0.84%). Also, XLK yielded on average 14.96% more per year over the past decade (20.02% vs. 5.06%). The expense ratio of XLK is 0.03 percentage points lower than IEF’s (0.12% vs. 0.15%).
Fund Composition
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%.
| IEF 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% |
IEF’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
| XLK | IEF | |
| Mean Return | 1.7 | 0.32 |
| R-squared | 73.56 | 77.56 |
| Std. Deviation | 15.58 | 5.42 |
| Alpha | 10.43 | -1.2 |
| Beta | 0.95 | 1.59 |
| Sharpe Ratio | 1.27 | 0.6 |
| Treynor Ratio | 21.44 | 1.97 |
The Technology Select Sector SPDR Fund (XLK) has a Sharpe Ratio of 1.27 with a Standard Deviation of 15.58 and a Alpha of 10.43. Its Mean Return is 1.7 while XLK’s R-squared is 73.56. Furthermore, the fund has a Beta of 0.95 and a Treynor Ratio of 21.44.
The iShares 7-10 Year Treasury Bond ETF (IEF) has a Standard Deviation of 5.42 with a Mean Return of 0.32 and a R-squared of 77.56. Its Alpha is -1.2 while IEF’s Treynor Ratio is 1.97. Furthermore, the fund has a Beta of 1.59 and a Sharpe Ratio of 0.6.
XLK’s Mean Return is 1.38 points higher than that of IEF and its R-squared is 4.00 points lower. With a Standard Deviation of 15.58, XLK is slightly more volatile than IEF. The Alpha and Beta of XLK are 11.63 points higher and 0.64 points lower than IEF’s Alpha and Beta.
Performance
Annual Returns
| Year | XLK | IEF |
| 2020 | 43.67% | 9.84% |
| 2019 | 49.97% | 8.38% |
| 2018 | -1.56% | 0.82% |
| 2017 | 34.27% | 2.47% |
| 2016 | 14.81% | 1.0% |
| 2015 | 5.62% | 1.55% |
| 2014 | 17.75% | 8.92% |
| 2013 | 25.98% | -6.12% |
| 2012 | 15.47% | 4.06% |
| 2011 | 2.69% | 15.46% |
| 2010 | 11.6% | 9.29% |
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 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| XLK | $10,000 | $67,790 | 20.02% |
| IEF | $10,000 | $16,936 | 5.06% |
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 IEF, the end total would have been $16,936. This equates to a $6,936 profit over 11 years and a compound annual growth rate (CAGR) of 5.06%.
XLK’s CAGR is 14.96 percentage points higher than that of IEF and as a result, would have yielded $50,854 more on a $10,000 investment. Thus, XLK outperformed IEF by 14.96% annually.
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