The largest and most commonly referenced ETF is SPY, which tracks the S&P 500 index. This index tracks the 500 largest publicly traded companies in the US stock market. SPY is now 30 years old (it was launched in January of 1993), and currently has over $375 billion in AUM (assets under management). The main benefit of SPY and similar ETFs that track the S&P 500 (like VOO) is that they give investors the ability to invest in all types of sectors of the economy. This includes everything from Technology to Real Estate.
But what if you are looking to invest in just a particular sector of the S&P 500? For example, what if you want to only invest in the Technology companies of the S&P 500? Enter the Sector SPDR ETFs. These ETFs are administered by State Street Bank and Trust Company, which also administers SPY. They allow investors to buy just a specific sector in the S&P 500. For the Technology sector there is XLK, which is one of eleven Sector SPDR ETFs. XLK covers all the Technology stocks in the index (of which there are currently 76).
What is unique about the Sector SPDR ETFs is all of the companies they cover are part of the S&P 500. So while an investor looking to trade tech stocks has plenty of ETFs to choose from, not all are focused specifically on the S&P 500. For example, IYW and VGT, two other popular tech-focused ETFs, track different indexes. IYW tracks a portion of the Russell 1000 index (and consists of 140 companies), while VGT tracks an MSCI IT index (and consists of 368 companies). These indexes often have many companies that are outside of the S&P 500, which may or may not be in alignment with the investor’s goals.
Now onto the important question: how have these Sector SPDR ETFs done in comparison to SPY? Here is a breakdown of their returns over the last three years, in which SPY has generated 27.9% returns:
These Sector SPDR ETFs beat SPY:
- XLE, which tracks the Energy sector, has had 95.8% returns. XLE has $40.1 billion AUM and consists of 23 companies. The three largest holdings are Exxon Mobil, Chevron and Schlumberger.
- XLB, which tracks the Materials sector, has had 45.4% returns. XLB has $6.0 billion AUM and consists of 29 companies. The three largest holdings are Linde, Air Products & Chemicals and Freeport-McMoRan.
- XLK, the tech-focused ETF, has had 43.1% returns. XLK has $42.1 billion AUM and as mentioned earlier consists of 76 companies. The three largest holdings are Apple, Microsoft and NVIDIA.
- XLV, which tracks the Healthcare sector, has had 34.1% returns. XLV has $40.0 billion AUM and consists of 64 companies. The three largest holdings are UnitedHealth Group, Johnson & Johnson and Merck & Co.
These Sector SPDR ETFs did not beat SPY:
- XLI, which tracks the Industrials sector, has had 27.7% returns, just shy of the 27.9% returns that SPY has had during this period. XLI has $14.0 billion AUM and consists of 71 companies. The three largest holdings are Raytheon, UPS and Honeywell.
- XLF, which tracks the Financial sector, has had 25.5% returns. XLF has $34.1 billion AUM and consists of 67 companies. The three largest holdings are Berkshire Hathaway, JPMorgan Chase and Bank of America.
- XLP, which tracks the Consumer Staples sector, has had 22.2% returns. XLP has $16.4 billion AUM and consists of 33 companies. The three largest holdings are Procter & Gamble, Pepsi and Coca-Cola.
- XLY, which tracks the Consumer Discretionary sector, has had 17.1% returns. XLY has $14.7 billion AUM and consists of 56 companies. The three largest holdings are Amazon, Tesla and Home Depot.
- XLRE, which tracks the Real Estate sector, has had 9.67% returns. XLRE has $5.3 billion AUM and consists of 30 companies. The three largest holdings are Prologis, American Tower Corp and Equinix.
- XLU, which tracks the Utilities sector, has had 8.2% returns. XLU has $15.1 billion AUM and consists of 30 companies. The three largest holdings are NextEra Energy, Duke Energy and Southern Company.
- XLC, which tracks the Communications Services sector, has had 0.3% returns. XLC has $9.3 billion AUM and consists of 25 companies. The three largest holdings are Meta, Alphabet and Verizon.
In summary, 4 of the 11 Sector SPDR ETFs performed before better than SPY over the last three years. During this period, the Energy, Materials and Technology sectors significantly outperformed the S&P 500 index. On the other side, the Real Estate, Utilities and Communications Services sectors significantly underperformed the index.