The Health Care Select Sector SPDR Fund (XLV) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. XLV is a SPDR State Street Global Advisors Health fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between XLV and HYG? And which fund is better?
The expense ratio of XLV is 0.36 percentage points lower than HYG’s (0.12% vs. 0.48%). XLV also has a high exposure to the healthcare sector while HYG is mostly comprised of BB bonds. Overall, XLV has provided higher returns than HYG over the past ten years.
In this article, we’ll compare XLV vs. HYG. We’ll look at fund composition and industry exposure, as well as at their annual returns and risk metrics. Moreover, I’ll also discuss XLV’s and HYG’s holdings, performance, and portfolio growth and examine how these affect their overall returns.
|Name||Health Care Select Sector SPDR Fund||iShares iBoxx $ High Yield Corporate Bond ETF|
|Category||Health||High Yield Bond|
|Issuer||SPDR State Street Global Advisors||iShares|
The Health Care Select Sector SPDR Fund (XLV) is a Health fund that is issued by SPDR State Street Global Advisors. It currently has 27.88B total assets under management and has yielded an average annual return of 15.02% over the past 10 years. The fund has a dividend yield of 1.4% with an expense ratio of 0.12%.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.
XLV’s dividend yield is 3.04% lower than that of HYG (1.4% vs. 4.44%). Also, XLV yielded on average 8.61% more per year over the past decade (15.02% vs. 6.42%). The expense ratio of XLV is 0.36 percentage points lower than HYG’s (0.12% vs. 0.48%).
|Johnson & Johnson||9.19%|
|UnitedHealth Group Inc||8.01%|
|Thermo Fisher Scientific Inc||4.2%|
|Merck & Co Inc||4.17%|
|Eli Lilly and Co||3.87%|
XLV’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and AbbVie Inc at 9.19%, 8.01%, 4.64%, 4.36%, and 4.21%.
Thermo Fisher Scientific Inc (4.2%), Merck & Co Inc (4.17%), and Eli Lilly and Co (3.87%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the XLV’s holdings at 3.61% and 3.54%.
|HYG Bond Sectors||Weight|
HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
The Health Care Select Sector SPDR Fund (XLV) has a Standard Deviation of 12.94 with a Alpha of 7.75 and a Treynor Ratio of 21.1. Its Beta is 0.7 while XLV’s Mean Return is 1.27. Furthermore, the fund has a R-squared of 58.19 and a Sharpe Ratio of 1.13.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Beta of 0.48 with a Sharpe Ratio of 0.7 and a Treynor Ratio of 10.01. Its R-squared is 4.1 while HYG’s Standard Deviation is 6.96. Furthermore, the fund has a Mean Return of 0.46 and a Alpha of 3.58.
XLV’s Mean Return is 0.81 points higher than that of HYG and its R-squared is 54.09 points higher. With a Standard Deviation of 12.94, XLV is slightly more volatile than HYG. The Alpha and Beta of XLV are 4.17 points higher and 0.22 points higher than HYG’s Alpha and Beta.
XLV had its best year in 2013 with an annual return of 41.24%. XLV’s worst year over the past decade yielded -2.83% and occurred in 2016. In most years the Health Care Select Sector SPDR Fund provided moderate returns such as in 2011, 2020, and 2012 where annual returns amounted to 12.44%, 13.33%, and 17.56% respectively.
The year 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in XLV would have resulted in a final balance of $44,147. This is a profit of $34,147 over 11 years and amounts to a compound annual growth rate (CAGR) of 15.02%.
With a $10,000 investment in HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.
XLV’s CAGR is 8.61 percentage points higher than that of HYG and as a result, would have yielded $24,720 more on a $10,000 investment. Thus, XLV outperformed HYG by 8.61% annually.
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.