XLK vs. SHY: What’s The Difference?

The Technology Select Sector SPDR Fund (XLK) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. XLK is a SPDR State Street Global Advisors Technology fund and SHY is a iShares Short Government fund. So, what’s the difference between XLK and SHY? And which fund is better?

The expense ratio of XLK is 0.03 percentage points lower than SHY’s (0.12% vs. 0.15%). XLK also has a high exposure to the technology sector while SHY is mostly comprised of AAA bonds. Overall, XLK has provided higher returns than SHY over the past ten years.

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

Summary

XLK SHY
Name Technology Select Sector SPDR Fund iShares 1-3 Year Treasury Bond ETF
Category Technology Short Government
Issuer SPDR State Street Global Advisors iShares
AUM 42.3B 19.51B
Avg. Return 20.02% 1.27%
Div. Yield 0.73% 0.46%
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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

XLK’s dividend yield is 0.27% higher than that of SHY (0.73% vs. 0.46%). Also, XLK yielded on average 18.75% more per year over the past decade (20.02% vs. 1.27%). The expense ratio of XLK is 0.03 percentage points lower than SHY’s (0.12% vs. 0.15%).

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%.

SHY - Holdings

SHY Bond Sectors Weight
AAA 99.67%
Others 0.33%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 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 SHY
Mean Return 1.7 0.09
R-squared 73.56 39.11
Std. Deviation 15.58 0.89
Alpha 10.43 -0.03
Beta 0.95 0.18
Sharpe Ratio 1.27 0.54
Treynor Ratio 21.44 2.6

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

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Alpha of -0.03 with a Mean Return of 0.09 and a Beta of 0.18. Its Standard Deviation is 0.89 while SHY’s R-squared is 39.11. Furthermore, the fund has a Sharpe Ratio of 0.54 and a Treynor Ratio of 2.6.

XLK’s Mean Return is 1.61 points higher than that of SHY and its R-squared is 34.45 points higher. With a Standard Deviation of 15.58, XLK is slightly more volatile than SHY. The Alpha and Beta of XLK are 10.46 points higher and 0.77 points higher than SHY’s Alpha and Beta.

Performance

Annual Returns

XLK vs. SHY - Annual Returns

Year XLK SHY
2020 43.67% 3.01%
2019 49.97% 3.42%
2018 -1.56% 1.45%
2017 34.27% 0.27%
2016 14.81% 0.75%
2015 5.62% 0.43%
2014 17.75% 0.48%
2013 25.98% 0.23%
2012 15.47% 0.31%
2011 2.69% 1.43%
2010 11.6% 2.23%

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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.

Portfolio Growth

XLK vs. SHY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLK $10,000 $67,790 20.02%
SHY $10,000 $11,486 1.27%

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 SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.

XLK’s CAGR is 18.75 percentage points higher than that of SHY and as a result, would have yielded $56,304 more on a $10,000 investment. Thus, XLK outperformed SHY by 18.75% annually.


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