XLY vs. IEF: What’s The Difference?

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

The expense ratio of XLY is 0.03 percentage points lower than IEF’s (0.12% vs. 0.15%). XLY also has a high exposure to the consumer cyclical sector while IEF is mostly comprised of AAA bonds. Overall, XLY has provided higher returns than IEF over the past 11 years.

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

Summary

XLY IEF
Name Consumer Discretionary Select Sector SPDR Fund iShares 7-10 Year Treasury Bond ETF
Category Consumer Cyclical Long Government
Issuer SPDR State Street Global Advisors iShares
AUM 20.21B 13.44B
Avg. Return 18.86% 5.06%
Div. Yield 0.63% 0.84%
Expense Ratio 0.12% 0.15%

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 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%.

XLY’s dividend yield is 0.21% lower than that of IEF (0.63% vs. 0.84%). Also, XLY yielded on average 13.80% more per year over the past decade (18.86% vs. 5.06%). The expense ratio of XLY is 0.03 percentage points lower than IEF’s (0.12% vs. 0.15%).

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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%.

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.

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Risk Analysis

XLY IEF
Mean Return 1.47 0.32
R-squared 80.84 77.56
Std. Deviation 15.97 5.42
Alpha 6.96 -1.2
Beta 1.02 1.59
Sharpe Ratio 1.06 0.6
Treynor Ratio 16.69 1.97

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

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

XLY’s Mean Return is 1.15 points higher than that of IEF and its R-squared is 3.28 points higher. With a Standard Deviation of 15.97, XLY is slightly more volatile than IEF. The Alpha and Beta of XLY are 8.16 points higher and 0.57 points lower than IEF’s Alpha and Beta.

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Performance

Annual Returns

XLY vs. IEF - Annual Returns

Year XLY IEF
2020 29.66% 9.84%
2019 28.43% 8.38%
2018 1.66% 0.82%
2017 22.77% 2.47%
2016 5.87% 1.0%
2015 9.93% 1.55%
2014 9.49% 8.92%
2013 42.74% -6.12%
2012 23.6% 4.06%
2011 5.98% 15.46%
2010 27.36% 9.29%

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 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

XLY vs. IEF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLY $10,000 $63,066 18.86%
IEF $10,000 $16,936 5.06%

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 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%.

XLY’s CAGR is 13.80 percentage points higher than that of IEF and as a result, would have yielded $46,130 more on a $10,000 investment. Thus, XLY outperformed IEF by 13.80% annually.


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