XLV vs. HYG: What’s The Difference?

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.

Summary

XLV HYG
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
AUM 27.88B 20.03B
Avg. Return 15.02% 6.42%
Div. Yield 1.4% 4.44%
Expense Ratio 0.12% 0.48%

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%).

Fund Composition

Holdings

XLV - Holdings

XLV Holdings Weight
Johnson & Johnson 9.19%
UnitedHealth Group Inc 8.01%
Pfizer Inc 4.64%
Abbott Laboratories 4.36%
AbbVie Inc 4.21%
Thermo Fisher Scientific Inc 4.2%
Merck & Co Inc 4.17%
Eli Lilly and Co 3.87%
Danaher Corp 3.61%
Medtronic PLC 3.54%

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 - Holdings

HYG Bond Sectors Weight
BB 56.53%
B 31.27%
Below B 11.4%
BBB 0.61%
AAA 0.28%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.09%

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.

Risk Analysis

XLV HYG
Mean Return 1.27 0.46
R-squared 58.19 4.1
Std. Deviation 12.94 6.96
Alpha 7.75 3.58
Beta 0.7 0.48
Sharpe Ratio 1.13 0.7
Treynor Ratio 21.1 10.01

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.

Performance

Annual Returns

XLV vs. HYG - Annual Returns

Year XLV HYG
2020 13.33% 4.12%
2019 20.63% 14.23%
2018 6.3% -1.93%
2017 21.7% 6.09%
2016 -2.83% 13.92%
2015 6.82% -5.55%
2014 25.17% 2.0%
2013 41.24% 5.9%
2012 17.56% 13.83%
2011 12.44% 5.89%
2010 2.91% 12.07%

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.

Portfolio Growth

XLV vs. HYG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLV $10,000 $44,147 15.02%
HYG $10,000 $19,427 6.42%

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.


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