The Health Care Select Sector SPDR Fund (XLV) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. XLV is a SPDR State Street Global Advisors Health fund and SHY is a iShares Short Government fund. So, what’s the difference between XLV and SHY? And which fund is better?
The expense ratio of XLV is 0.03 percentage points lower than SHY’s (0.12% vs. 0.15%). XLV also has a high exposure to the healthcare sector while SHY is mostly comprised of AAA bonds. Overall, XLV has provided higher returns than SHY over the past ten years.
In this article, we’ll compare XLV vs. SHY. We’ll look at holdings and industry exposure, as well as at their risk metrics and portfolio growth. Moreover, I’ll also discuss XLV’s and SHY’s fund composition, annual returns, and performance and examine how these affect their overall returns.
Summary
| XLV | SHY | |
| Name | Health Care Select Sector SPDR Fund | iShares 1-3 Year Treasury Bond ETF |
| Category | Health | Short Government |
| Issuer | SPDR State Street Global Advisors | iShares |
| AUM | 27.88B | 19.51B |
| Avg. Return | 15.02% | 1.27% |
| Div. Yield | 1.4% | 0.46% |
| 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 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%.
XLV’s dividend yield is 0.94% higher than that of SHY (1.4% vs. 0.46%). Also, XLV yielded on average 13.75% more per year over the past decade (15.02% vs. 1.27%). The expense ratio of XLV is 0.03 percentage points lower than SHY’s (0.12% vs. 0.15%).
Fund Composition
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%.
| 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
| XLV | SHY | |
| Mean Return | 1.27 | 0.09 |
| R-squared | 58.19 | 39.11 |
| Std. Deviation | 12.94 | 0.89 |
| Alpha | 7.75 | -0.03 |
| Beta | 0.7 | 0.18 |
| Sharpe Ratio | 1.13 | 0.54 |
| Treynor Ratio | 21.1 | 2.6 |
The Health Care Select Sector SPDR Fund (XLV) has a Treynor Ratio of 21.1 with a R-squared of 58.19 and a Alpha of 7.75. 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 Beta of 0.7.
The iShares 1-3 Year Treasury Bond ETF (SHY) has a Beta of 0.18 with a Standard Deviation of 0.89 and a Alpha of -0.03. Its Treynor Ratio is 2.6 while SHY’s R-squared is 39.11. Furthermore, the fund has a Mean Return of 0.09 and a Sharpe Ratio of 0.54.
XLV’s Mean Return is 1.18 points higher than that of SHY and its R-squared is 19.08 points higher. With a Standard Deviation of 12.94, XLV is slightly more volatile than SHY. The Alpha and Beta of XLV are 7.78 points higher and 0.52 points higher than SHY’s Alpha and Beta.
Performance
Annual Returns
| Year | XLV | SHY |
| 2020 | 13.33% | 3.01% |
| 2019 | 20.63% | 3.42% |
| 2018 | 6.3% | 1.45% |
| 2017 | 21.7% | 0.27% |
| 2016 | -2.83% | 0.75% |
| 2015 | 6.82% | 0.43% |
| 2014 | 25.17% | 0.48% |
| 2013 | 41.24% | 0.23% |
| 2012 | 17.56% | 0.31% |
| 2011 | 12.44% | 1.43% |
| 2010 | 2.91% | 2.23% |
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 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
| Fund | Initial Balance | Final Balance | CAGR |
| XLV | $10,000 | $44,147 | 15.02% |
| SHY | $10,000 | $11,486 | 1.27% |
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 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%.
XLV’s CAGR is 13.75 percentage points higher than that of SHY and as a result, would have yielded $32,661 more on a $10,000 investment. Thus, XLV outperformed SHY by 13.75% annually.
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