XLY vs. EMB: What’s The Difference?

The Consumer Discretionary Select Sector SPDR Fund (XLY) and the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) are both among the Top 100 ETFs. XLY is a SPDR State Street Global Advisors Consumer Cyclical fund and EMB is a iShares Emerging Markets Bond fund. So, what’s the difference between XLY and EMB? And which fund is better?

The expense ratio of XLY is 0.27 percentage points lower than EMB’s (0.12% vs. 0.39%). XLY also has a high exposure to the consumer cyclical sector while EMB is mostly comprised of BBB bonds. Overall, XLY has provided higher returns than EMB over the past 11 years.

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

Summary

XLY EMB
Name Consumer Discretionary Select Sector SPDR Fund iShares J.P. Morgan USD Emerging Markets Bond ETF
Category Consumer Cyclical Emerging Markets Bond
Issuer SPDR State Street Global Advisors iShares
AUM 20.21B 19.76B
Avg. Return 18.86% 6.43%
Div. Yield 0.63% 3.85%
Expense Ratio 0.12% 0.39%

The Consumer Discretionary Select Sector SPDR Fund (XLY) is a Consumer Cyclical fund that is issued by SPDR State Street Global Advisors. It currently has 20.21B total assets under management and has yielded an average annual return of 18.86% over the past 10 years. The fund has a dividend yield of 0.63% with an expense ratio of 0.12%.

The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) is a Emerging Markets Bond fund that is issued by iShares. It currently has 19.76B total assets under management and has yielded an average annual return of 6.43% over the past 10 years. The fund has a dividend yield of 3.85% with an expense ratio of 0.39%.

XLY’s dividend yield is 3.22% lower than that of EMB (0.63% vs. 3.85%). Also, XLY yielded on average 12.43% more per year over the past decade (18.86% vs. 6.43%). The expense ratio of XLY is 0.27 percentage points lower than EMB’s (0.12% vs. 0.39%).

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Fund Composition

Holdings

XLY - Holdings

XLY Holdings Weight
Amazon.com Inc 22.9%
Tesla Inc 13.5%
The Home Depot Inc 8.74%
McDonald’s Corp 4.5%
Nike Inc B 4.45%
Lowe’s Companies Inc 3.58%
Starbucks Corp 3.44%
Target Corp 3.12%
Booking Holdings Inc 2.35%
TJX Companies Inc 2.12%

XLY’s Top Holdings are Amazon.com Inc, Tesla Inc, The Home Depot Inc, McDonald’s Corp, and Nike Inc B at 22.9%, 13.5%, 8.74%, 4.5%, and 4.45%.

Lowe’s Companies Inc (3.58%), Starbucks Corp (3.44%), and Target Corp (3.12%) have a slightly smaller but still significant weight. Booking Holdings Inc and TJX Companies Inc are also represented in the XLY’s holdings at 2.35% and 2.12%.

EMB - Holdings

EMB Bond Sectors Weight
BBB 33.79%
B 21.97%
BB 16.92%
A 13.67%
AA 7.97%
Below B 4.49%
Others 1.11%
AAA 0.09%
US Government 0.0%

EMB’s Top Bond Sectors are ratings of BBB, B, BB, A, and AA at 33.79%, 21.97%, 16.92%, 13.67%, and 7.97%. The fund is less weighted towards Below B (4.49%), Others (1.11%), and AAA (0.09%) rated bonds.

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Risk Analysis

XLY EMB
Mean Return 1.47 0.44
R-squared 80.84 23.34
Std. Deviation 15.97 8.44
Alpha 6.96 0.89
Beta 1.02 1.36
Sharpe Ratio 1.06 0.55
Treynor Ratio 16.69 3.24

The Consumer Discretionary Select Sector SPDR Fund (XLY) has a Mean Return of 1.47 with a Sharpe Ratio of 1.06 and a Standard Deviation of 15.97. Its Beta is 1.02 while XLY’s R-squared is 80.84. Furthermore, the fund has a Treynor Ratio of 16.69 and a Alpha of 6.96.

The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has a R-squared of 23.34 with a Sharpe Ratio of 0.55 and a Standard Deviation of 8.44. Its Beta is 1.36 while EMB’s Mean Return is 0.44. Furthermore, the fund has a Alpha of 0.89 and a Treynor Ratio of 3.24.

XLY’s Mean Return is 1.03 points higher than that of EMB and its R-squared is 57.50 points higher. With a Standard Deviation of 15.97, XLY is slightly more volatile than EMB. The Alpha and Beta of XLY are 6.07 points higher and 0.34 points lower than EMB’s Alpha and Beta.

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Performance

Annual Returns

XLY vs. EMB - Annual Returns

Year XLY EMB
2020 29.66% 5.48%
2019 28.43% 15.57%
2018 1.66% -5.67%
2017 22.77% 9.98%
2016 5.87% 9.41%
2015 9.93% 0.43%
2014 9.49% 6.69%
2013 42.74% -7.42%
2012 23.6% 17.64%
2011 5.98% 7.2%
2010 27.36% 11.47%

XLY had its best year in 2013 with an annual return of 42.74%. XLY’s worst year over the past decade yielded 1.66% and occurred in 2018. In most years the Consumer Discretionary Select Sector SPDR Fund provided moderate returns such as in 2015, 2017, and 2012 where annual returns amounted to 9.93%, 22.77%, and 23.6% respectively.

The year 2012 was the strongest year for EMB, returning 17.64% on an annual basis. The poorest year for EMB in the last ten years was 2013, with a yield of -7.42%. Most years the iShares J.P. Morgan USD Emerging Markets Bond ETF has given investors modest returns, such as in 2014, 2011, and 2016, when gains were 6.69%, 7.2%, and 9.41% respectively.

Portfolio Growth

XLY vs. EMB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLY $10,000 $63,066 18.86%
EMB $10,000 $19,295 6.43%

A $10,000 investment in XLY would have resulted in a final balance of $63,066. This is a profit of $53,066 over 11 years and amounts to a compound annual growth rate (CAGR) of 18.86%.

With a $10,000 investment in EMB, the end total would have been $19,295. This equates to a $9,295 profit over 11 years and a compound annual growth rate (CAGR) of 6.43%.

XLY’s CAGR is 12.43 percentage points higher than that of EMB and as a result, would have yielded $43,771 more on a $10,000 investment. Thus, XLY outperformed EMB by 12.43% annually.


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