XLV vs. IEF: What’s The Difference?

The Health Care Select Sector SPDR Fund (XLV) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. XLV is a SPDR State Street Global Advisors Health fund and IEF is a iShares Long Government fund. So, what’s the difference between XLV and IEF? And which fund is better?

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

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

Summary

XLV IEF
Name Health Care Select Sector SPDR Fund iShares 7-10 Year Treasury Bond ETF
Category Health Long Government
Issuer SPDR State Street Global Advisors iShares
AUM 27.88B 13.44B
Avg. Return 15.02% 5.06%
Div. Yield 1.4% 0.84%
Expense Ratio 0.12% 0.15%

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 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

XLV’s dividend yield is 0.56% higher than that of IEF (1.4% vs. 0.84%). Also, XLV yielded on average 9.96% more per year over the past decade (15.02% vs. 5.06%). The expense ratio of XLV is 0.03 percentage points lower than IEF’s (0.12% vs. 0.15%).

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%.

IEF - Holdings

IEF Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

IEF’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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

XLV IEF
Mean Return 1.27 0.32
R-squared 58.19 77.56
Std. Deviation 12.94 5.42
Alpha 7.75 -1.2
Beta 0.7 1.59
Sharpe Ratio 1.13 0.6
Treynor Ratio 21.1 1.97

The Health Care Select Sector SPDR Fund (XLV) has a R-squared of 58.19 with a Alpha of 7.75 and a Beta of 0.7. Its Mean Return is 1.27 while XLV’s Standard Deviation is 12.94. Furthermore, the fund has a Sharpe Ratio of 1.13 and a Treynor Ratio of 21.1.

The iShares 7-10 Year Treasury Bond ETF (IEF) has a Alpha of -1.2 with a Sharpe Ratio of 0.6 and a Beta of 1.59. Its R-squared is 77.56 while IEF’s Treynor Ratio is 1.97. Furthermore, the fund has a Standard Deviation of 5.42 and a Mean Return of 0.32.

XLV’s Mean Return is 0.95 points higher than that of IEF and its R-squared is 19.37 points lower. With a Standard Deviation of 12.94, XLV is slightly more volatile than IEF. The Alpha and Beta of XLV are 8.95 points higher and 0.89 points lower than IEF’s Alpha and Beta.

Performance

Annual Returns

XLV vs. IEF - Annual Returns

Year XLV IEF
2020 13.33% 9.84%
2019 20.63% 8.38%
2018 6.3% 0.82%
2017 21.7% 2.47%
2016 -2.83% 1.0%
2015 6.82% 1.55%
2014 25.17% 8.92%
2013 41.24% -6.12%
2012 17.56% 4.06%
2011 12.44% 15.46%
2010 2.91% 9.29%

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 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

XLV vs. IEF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLV $10,000 $44,147 15.02%
IEF $10,000 $16,936 5.06%

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 IEF, the end total would have been $16,936. This equates to a $6,936 profit over 11 years and a compound annual growth rate (CAGR) of 5.06%.

XLV’s CAGR is 9.96 percentage points higher than that of IEF and as a result, would have yielded $27,211 more on a $10,000 investment. Thus, XLV outperformed IEF by 9.96% annually.


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