XLY vs. TLT: What’s The Difference?

The Consumer Discretionary Select Sector SPDR Fund (XLY) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. XLY is a SPDR State Street Global Advisors Consumer Cyclical fund and TLT is a iShares Long Government fund. So, what’s the difference between XLY and TLT? And which fund is better?

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

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

Summary

XLY TLT
Name Consumer Discretionary Select Sector SPDR Fund iShares 20+ Year Treasury Bond ETF
Category Consumer Cyclical Long Government
Issuer SPDR State Street Global Advisors iShares
AUM 20.21B 15.15B
Avg. Return 18.86% 9.00%
Div. Yield 0.63% 1.5%
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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.

XLY’s dividend yield is 0.87% lower than that of TLT (0.63% vs. 1.5%). Also, XLY yielded on average 9.87% more per year over the past decade (18.86% vs. 9.00%). The expense ratio of XLY is 0.03 percentage points lower than TLT’s (0.12% vs. 0.15%).

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%.

TLT - Holdings

TLT 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%

TLT’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

XLY TLT
Mean Return 1.47 0.63
R-squared 80.84 68.76
Std. Deviation 15.97 12.76
Alpha 6.96 -2.83
Beta 1.02 3.54
Sharpe Ratio 1.06 0.55
Treynor Ratio 16.69 1.82

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

The iShares 20+ Year Treasury Bond ETF (TLT) has a Mean Return of 0.63 with a Treynor Ratio of 1.82 and a R-squared of 68.76. Its Sharpe Ratio is 0.55 while TLT’s Alpha is -2.83. Furthermore, the fund has a Beta of 3.54 and a Standard Deviation of 12.76.

XLY’s Mean Return is 0.84 points higher than that of TLT and its R-squared is 12.08 points higher. With a Standard Deviation of 15.97, XLY is slightly more volatile than TLT. The Alpha and Beta of XLY are 9.79 points higher and 2.52 points lower than TLT’s Alpha and Beta.

Performance

Annual Returns

XLY vs. TLT - Annual Returns

Year XLY TLT
2020 29.66% 17.92%
2019 28.43% 14.93%
2018 1.66% -2.07%
2017 22.77% 8.92%
2016 5.87% 1.36%
2015 9.93% -1.65%
2014 9.49% 27.35%
2013 42.74% -13.91%
2012 23.6% 3.25%
2011 5.98% 33.6%
2010 27.36% 9.25%

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 TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.

Portfolio Growth

XLY vs. TLT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLY $10,000 $63,066 18.86%
TLT $10,000 $23,809 9.00%

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 TLT, the end total would have been $23,809. This equates to a $13,809 profit over 11 years and a compound annual growth rate (CAGR) of 9.00%.

XLY’s CAGR is 9.87 percentage points higher than that of TLT and as a result, would have yielded $39,257 more on a $10,000 investment. Thus, XLY outperformed TLT by 9.87% annually.


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