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XLK vs. PFF: What’s The Difference?

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

The expense ratio of XLK is 0.34 percentage points lower than PFF’s (0.12% vs. 0.46%). XLK also has a higher exposure to the technology sector and a higher standard deviation. Overall, XLK has provided higher returns than PFF over the past ten years.

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

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Summary

XLKPFF
NameTechnology Select Sector SPDR FundiShares Preferred and Income Securities ETF
CategoryTechnologyPreferred Stock
IssuerSPDR State Street Global AdvisorsiShares
AUM42.3B19.8B
Avg. Return20.02%6.90%
Div. Yield0.73%4.47%
Expense Ratio0.12%0.46%

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 Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

XLK’s dividend yield is 3.74% lower than that of PFF (0.73% vs. 4.47%). Also, XLK yielded on average 13.13% more per year over the past decade (20.02% vs. 6.90%). The expense ratio of XLK is 0.34 percentage points lower than PFF’s (0.12% vs. 0.46%).

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Fund Composition

Industry Exposure

XLK vs. PFF - Industry Exposure

XLKPFF
Technology87.54%0.0%
Industrials1.75%10.27%
Energy0.0%0.0%
Communication Services0.0%0.0%
Utilities0.0%81.81%
Healthcare0.0%3.54%
Consumer Defensive0.0%0.0%
Real Estate0.0%0.65%
Financial Services10.71%0.0%
Consumer Cyclical0.0%0.0%
Basic Materials0.0%3.74%

The Technology Select Sector SPDR Fund (XLK) has the most exposure to the Technology sector at 87.54%. This is followed by Financial Services and Industrials at 10.71% and 1.75% respectively. Consumer Cyclical (0.0%), Real Estate (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

XLK’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 1.75%.

The iShares Preferred and Income Securities ETF (PFF) has the most exposure to the Utilities sector at 81.81%. This is followed by Industrials and Basic Materials at 10.27% and 3.74% respectively. Financial Services (0.0%), Consumer Defensive (0.0%), and Communication Services (0.0%) only make up 0.00% of the fund’s total assets.

PFF’s mid-section with moderate exposure is comprised of Energy, Technology, Real Estate, Healthcare, and Basic Materials stocks at 0.0%, 0.0%, 0.65%, 3.54%, and 3.74%.

XLK is 87.54% more exposed to the Technology sector than PFF (87.54% vs 0.0%). XLK’s exposure to Financial Services and Industrials stocks is 10.71% higher and 8.52% lower respectively (10.71% vs. 0.0% and 1.75% vs. 10.27%). In total, Consumer Cyclical, Real Estate, and Consumer Defensive also make up 0.65% less of the fund’s holdings compared to PFF (0.00% vs. 0.65%).

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%.

PFF - Holdings

PFF HoldingsWeight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A2.54%
BlackRock Cash Funds Treasury SL Agency2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-1.49%
ArcelorMittal S.A. 5.5%1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B1.14%
NextEra Energy Inc Unit1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.41.08%
Avantor Inc Ser A0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

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Risk Analysis

XLKPFF
Mean Return1.70.52
R-squared73.569.39
Std. Deviation15.587.87
Alpha10.433.45
Beta0.950.81
Sharpe Ratio1.270.72
Treynor Ratio21.446.79

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

The iShares Preferred and Income Securities ETF (PFF) has a Standard Deviation of 7.87 with a Treynor Ratio of 6.79 and a Beta of 0.81. Its Mean Return is 0.52 while PFF’s Sharpe Ratio is 0.72. Furthermore, the fund has a Alpha of 3.45 and a R-squared of 9.39.

XLK’s Mean Return is 1.18 points higher than that of PFF and its R-squared is 64.17 points higher. With a Standard Deviation of 15.58, XLK is slightly more volatile than PFF. The Alpha and Beta of XLK are 6.98 points higher and 0.14 points higher than PFF’s Alpha and Beta.

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Performance

Annual Returns

XLK vs. PFF - Annual Returns

YearXLKPFF
202043.67%7.94%
201949.97%15.62%
2018-1.56%-4.77%
201734.27%8.33%
201614.81%1.26%
20155.62%4.62%
201417.75%13.45%
201325.98%-0.59%
201215.47%18.25%
20112.69%-2.2%
201011.6%13.96%

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 PFF, returning 18.25% on an annual basis. The poorest year for PFF in the last ten years was 2018, with a yield of -4.77%. Most years the iShares Preferred and Income Securities ETF has given investors modest returns, such as in 2015, 2020, and 2017, when gains were 4.62%, 7.94%, and 8.33% respectively.

Portfolio Growth

XLK vs. PFF - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
XLK$10,000$67,79020.02%
PFF$10,000$20,2726.90%

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 PFF, the end total would have been $20,272. This equates to a $10,272 profit over 11 years and a compound annual growth rate (CAGR) of 6.90%.

XLK’s CAGR is 13.13 percentage points higher than that of PFF and as a result, would have yielded $47,518 more on a $10,000 investment. Thus, XLK outperformed PFF by 13.13% annually.


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