XLK vs. XLF: What’s The Difference?

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

XLK and XLF have the same expense ratio: 0.12%. XLK also has a higher exposure to the technology sector and a lower standard deviation. Overall, XLK has provided higher returns than XLF over the past ten years.

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

Summary

XLK XLF
Name Technology Select Sector SPDR Fund Financial Select Sector SPDR Fund
Category Technology Financial
Issuer SPDR State Street Global Advisors SPDR State Street Global Advisors
AUM 42.3B 40.81B
Avg. Return 20.02% 12.17%
Div. Yield 0.73% 1.57%
Expense Ratio 0.12% 0.12%

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 Financial Select Sector SPDR Fund (XLF) is a Financial fund that is issued by SPDR State Street Global Advisors. It currently has 40.81B total assets under management and has yielded an average annual return of 12.17% over the past 10 years. The fund has a dividend yield of 1.57% with an expense ratio of 0.12%.

XLK’s dividend yield is 0.84% lower than that of XLF (0.73% vs. 1.57%). Also, XLK yielded on average 7.86% more per year over the past decade (20.02% vs. 12.17%). XLK and XLF have the same expense ratio: 0.12%.

Fund Composition

Industry Exposure

XLK vs. XLF - Industry Exposure

XLK XLF
Technology 87.54% 0.0%
Industrials 1.75% 0.0%
Energy 0.0% 0.0%
Communication Services 0.0% 0.0%
Utilities 0.0% 0.0%
Healthcare 0.0% 0.0%
Consumer Defensive 0.0% 0.0%
Real Estate 0.0% 0.0%
Financial Services 10.71% 100.0%
Consumer Cyclical 0.0% 0.0%
Basic Materials 0.0% 0.0%

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 Financial Select Sector SPDR Fund (XLF) has the most exposure to the Financial Services sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% 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.

XLF’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 0.0%.

XLK is 87.54% more exposed to the Technology sector than XLF (87.54% vs 0.0%). XLK’s exposure to Financial Services and Industrials stocks is 89.29% lower and 1.75% higher respectively (10.71% vs. 100.0% and 1.75% vs. 0.0%). In total, Consumer Cyclical, Real Estate, and Consumer Defensive also make up 0.00% less of the fund’s holdings compared to XLF (0.00% vs. 0.00%).

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%.

XLF - Holdings

XLF Holdings Weight
Berkshire Hathaway Inc Class B 12.83%
JPMorgan Chase & Co 11.47%
Bank of America Corp 7.57%
Wells Fargo & Co 4.56%
Citigroup Inc 3.56%
Morgan Stanley 3.32%
Goldman Sachs Group Inc 3.15%
BlackRock Inc 3.02%
Charles Schwab Corp 2.66%
American Express Co 2.62%

XLF’s Top Holdings are Berkshire Hathaway Inc Class B, JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co, and Citigroup Inc at 12.83%, 11.47%, 7.57%, 4.56%, and 3.56%.

Morgan Stanley (3.32%), Goldman Sachs Group Inc (3.15%), and BlackRock Inc (3.02%) have a slightly smaller but still significant weight. Charles Schwab Corp and American Express Co are also represented in the XLF’s holdings at 2.66% and 2.62%.

Risk Analysis

XLK XLF
Mean Return 1.7 1.21
R-squared 73.56 73.26
Std. Deviation 15.58 18.86
Alpha 10.43 2.63
Beta 0.95 1.15
Sharpe Ratio 1.27 0.74
Treynor Ratio 21.44 11.25

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

The Financial Select Sector SPDR Fund (XLF) has a Sharpe Ratio of 0.74 with a Standard Deviation of 18.86 and a Alpha of 2.63. Its Beta is 1.15 while XLF’s R-squared is 73.26. Furthermore, the fund has a Treynor Ratio of 11.25 and a Mean Return of 1.21.

XLK’s Mean Return is 0.49 points higher than that of XLF and its R-squared is 0.30 points higher. With a Standard Deviation of 15.58, XLK is slightly less volatile than XLF. The Alpha and Beta of XLK are 7.80 points higher and 0.20 points lower than XLF’s Alpha and Beta.

Performance

Annual Returns

XLK vs. XLF - Annual Returns

Year XLK XLF
2020 43.67% -1.68%
2019 49.97% 31.88%
2018 -1.56% -13.09%
2017 34.27% 22.03%
2016 14.81% 22.55%
2015 5.62% -1.6%
2014 17.75% 15.02%
2013 25.98% 35.37%
2012 15.47% 28.53%
2011 2.69% -17.16%
2010 11.6% 11.97%

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 2013 was the strongest year for XLF, returning 35.37% on an annual basis. The poorest year for XLF in the last ten years was 2011, with a yield of -17.16%. Most years the Financial Select Sector SPDR Fund has given investors modest returns, such as in 2010, 2014, and 2017, when gains were 11.97%, 15.02%, and 22.03% respectively.

Portfolio Growth

XLK vs. XLF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLK $10,000 $67,790 20.02%
XLF $10,000 $30,782 12.17%

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 XLF, the end total would have been $30,782. This equates to a $20,782 profit over 11 years and a compound annual growth rate (CAGR) of 12.17%.

XLK’s CAGR is 7.86 percentage points higher than that of XLF and as a result, would have yielded $37,008 more on a $10,000 investment. Thus, XLK outperformed XLF by 7.86% annually.


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