XLK vs. MBB: What’s The Difference?

The Technology Select Sector SPDR Fund (XLK) and the iShares MBS ETF (MBB) are both among the Top 100 ETFs. XLK is a SPDR State Street Global Advisors Technology fund and MBB is a iShares Intermediate Government fund. So, what’s the difference between XLK and MBB? And which fund is better?

The expense ratio of XLK is 0.06 percentage points higher than MBB’s (0.12% vs. 0.06%). XLK also has a high exposure to the technology sector while MBB is mostly comprised of AAA bonds. Overall, XLK has provided higher returns than MBB over the past ten years.

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

Summary

XLK MBB
Name Technology Select Sector SPDR Fund iShares MBS ETF
Category Technology Intermediate Government
Issuer SPDR State Street Global Advisors iShares
AUM 42.3B 25.69B
Avg. Return 20.02% 3.08%
Div. Yield 0.73% 1.88%
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 MBS ETF (MBB) is a Intermediate Government fund that is issued by iShares. It currently has 25.69B total assets under management and has yielded an average annual return of 3.08% over the past 10 years. The fund has a dividend yield of 1.88% with an expense ratio of 0.06%.

XLK’s dividend yield is 1.15% lower than that of MBB (0.73% vs. 1.88%). Also, XLK yielded on average 16.95% more per year over the past decade (20.02% vs. 3.08%). The expense ratio of XLK is 0.06 percentage points higher than MBB’s (0.12% vs. 0.06%).

Fund Composition

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%.

MBB - Holdings

MBB Bond Sectors Weight
AAA 99.51%
Others 0.49%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

MBB’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.51%, 0.49%, 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 MBB
Mean Return 1.7 0.2
R-squared 73.56 74.38
Std. Deviation 15.58 2.12
Alpha 10.43 0.14
Beta 0.95 0.6
Sharpe Ratio 1.27 0.87
Treynor Ratio 21.44 3.02

The Technology Select Sector SPDR Fund (XLK) has a Sharpe Ratio of 1.27 with a Standard Deviation of 15.58 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 Mean Return of 1.7.

The iShares MBS ETF (MBB) has a Alpha of 0.14 with a R-squared of 74.38 and a Sharpe Ratio of 0.87. Its Mean Return is 0.2 while MBB’s Beta is 0.6. Furthermore, the fund has a Treynor Ratio of 3.02 and a Standard Deviation of 2.12.

XLK’s Mean Return is 1.50 points higher than that of MBB and its R-squared is 0.82 points lower. With a Standard Deviation of 15.58, XLK is slightly more volatile than MBB. The Alpha and Beta of XLK are 10.29 points higher and 0.35 points higher than MBB’s Alpha and Beta.

Performance

Annual Returns

XLK vs. MBB - Annual Returns

Year XLK MBB
2020 43.67% 4.03%
2019 49.97% 6.27%
2018 -1.56% 0.81%
2017 34.27% 2.37%
2016 14.81% 1.28%
2015 5.62% 1.28%
2014 17.75% 6.16%
2013 25.98% -1.92%
2012 15.47% 2.23%
2011 2.69% 5.88%
2010 11.6% 5.44%

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 MBB, returning 6.27% on an annual basis. The poorest year for MBB in the last ten years was 2013, with a yield of -1.92%. Most years the iShares MBS ETF has given investors modest returns, such as in 2012, 2017, and 2020, when gains were 2.23%, 2.37%, and 4.03% respectively.

Portfolio Growth

XLK vs. MBB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLK $10,000 $67,790 20.02%
MBB $10,000 $13,906 3.08%

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 MBB, the end total would have been $13,906. This equates to a $3,906 profit over 11 years and a compound annual growth rate (CAGR) of 3.08%.

XLK’s CAGR is 16.95 percentage points higher than that of MBB and as a result, would have yielded $53,884 more on a $10,000 investment. Thus, XLK outperformed MBB by 16.95% annually.


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