The Technology Select Sector SPDR Fund (XLK) and the iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) are both among the Top 100 ETFs. XLK is a SPDR State Street Global Advisors Technology fund and IGSB is a iShares Short-Term Bond fund. So, what’s the difference between XLK and IGSB? And which fund is better?
The expense ratio of XLK is 0.06 percentage points higher than IGSB’s (0.12% vs. 0.06%). XLK also has a high exposure to the technology sector while IGSB is mostly comprised of BBB bonds. Overall, XLK has provided higher returns than IGSB over the past ten years.
In this article, we’ll compare XLK vs. IGSB. We’ll look at risk metrics and portfolio growth, as well as at their industry exposure and fund composition. Moreover, I’ll also discuss XLK’s and IGSB’s holdings, annual returns, and performance and examine how these affect their overall returns.
Summary
| XLK | IGSB | |
| Name | Technology Select Sector SPDR Fund | iShares 1-5 Year Investment Grade Corporate Bond ETF |
| Category | Technology | Short-Term Bond |
| Issuer | SPDR State Street Global Advisors | iShares |
| AUM | 42.3B | 26.63B |
| Avg. Return | 20.02% | 2.51% |
| Div. Yield | 0.73% | 2.02% |
| Expense Ratio | 0.12% | 0.06% |
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 1-5 Year Investment Grade Corporate Bond ETF (IGSB) is a Short-Term Bond fund that is issued by iShares. It currently has 26.63B total assets under management and has yielded an average annual return of 2.51% over the past 10 years. The fund has a dividend yield of 2.02% with an expense ratio of 0.06%.
XLK’s dividend yield is 1.29% lower than that of IGSB (0.73% vs. 2.02%). Also, XLK yielded on average 17.52% more per year over the past decade (20.02% vs. 2.51%). The expense ratio of XLK is 0.06 percentage points higher than IGSB’s (0.12% vs. 0.06%).
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%.
| IGSB Bond Sectors | Weight |
| BBB | 50.48% |
| A | 40.04% |
| AA | 7.46% |
| AAA | 2.21% |
| BB | 0.09% |
| Below B | 0.0% |
| B | 0.0% |
| US Government | 0.0% |
| Others | -0.28% |
IGSB’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and BB at 50.48%, 40.04%, 7.46%, 2.21%, and 0.09%. The fund is less weighted towards Below B (0.0%), B (0.0%), and US Government (0.0%) rated bonds.
Risk Analysis
| XLK | IGSB | |
| Mean Return | 1.7 | 0.19 |
| R-squared | 73.56 | 26.13 |
| Std. Deviation | 15.58 | 2 |
| Alpha | 10.43 | 0.69 |
| Beta | 0.95 | 0.34 |
| Sharpe Ratio | 1.27 | 0.82 |
| Treynor Ratio | 21.44 | 4.82 |
The Technology Select Sector SPDR Fund (XLK) has a Sharpe Ratio of 1.27 with a Alpha of 10.43 and a Beta of 0.95. Its Standard Deviation is 15.58 while XLK’s Treynor Ratio is 21.44. Furthermore, the fund has a R-squared of 73.56 and a Mean Return of 1.7.
The iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) has a R-squared of 26.13 with a Sharpe Ratio of 0.82 and a Beta of 0.34. Its Alpha is 0.69 while IGSB’s Standard Deviation is 2. Furthermore, the fund has a Treynor Ratio of 4.82 and a Mean Return of 0.19.
XLK’s Mean Return is 1.51 points higher than that of IGSB and its R-squared is 47.43 points higher. With a Standard Deviation of 15.58, XLK is slightly more volatile than IGSB. The Alpha and Beta of XLK are 9.74 points higher and 0.61 points higher than IGSB’s Alpha and Beta.
Performance
Annual Returns
| Year | XLK | IGSB |
| 2020 | 43.67% | 5.26% |
| 2019 | 49.97% | 7.01% |
| 2018 | -1.56% | 1.34% |
| 2017 | 34.27% | 1.41% |
| 2016 | 14.81% | 1.77% |
| 2015 | 5.62% | 0.7% |
| 2014 | 17.75% | 0.74% |
| 2013 | 25.98% | 1.03% |
| 2012 | 15.47% | 3.28% |
| 2011 | 2.69% | 1.34% |
| 2010 | 11.6% | 3.69% |
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 IGSB, returning 7.01% on an annual basis. The poorest year for IGSB in the last ten years was 2015, with a yield of 0.7%. Most years the iShares 1-5 Year Investment Grade Corporate Bond ETF has given investors modest returns, such as in 2011, 2017, and 2016, when gains were 1.34%, 1.41%, and 1.77% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| XLK | $10,000 | $67,790 | 20.02% |
| IGSB | $10,000 | $13,103 | 2.51% |
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 IGSB, the end total would have been $13,103. This equates to a $3,103 profit over 11 years and a compound annual growth rate (CAGR) of 2.51%.
XLK’s CAGR is 17.52 percentage points higher than that of IGSB and as a result, would have yielded $54,687 more on a $10,000 investment. Thus, XLK outperformed IGSB by 17.52% annually.
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