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BND vs. LQD: What’s The Difference?

The Vanguard Total Bond Market Index Fund ETF Shares (BND) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. BND is a Vanguard Intermediate-Term Bond fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between BND and LQD? And which fund is better?

The expense ratio of BND is 0.11 percentage points lower than LQD’s (0.03% vs. 0.14%). BND is mostly comprised of AAA bonds and LQD has a high exposure to BBB bond. Overall, BND has provided lower returns than LQD over the past ten years.

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

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Summary

BNDLQD
NameVanguard Total Bond Market Index Fund ETF SharesiShares iBoxx $ Investment Grade Corporate Bond ETF
CategoryIntermediate-Term BondCorporate Bond
IssuerVanguardiShares
AUM312.15B40.23B
Avg. Return4.09%6.58%
Div. Yield2.02%2.48%
Expense Ratio0.03%0.14%

The Vanguard Total Bond Market Index Fund ETF Shares (BND) is a Intermediate-Term Bond fund that is issued by Vanguard. It currently has 312.15B total assets under management and has yielded an average annual return of 4.09% over the past 10 years. The fund has a dividend yield of 2.02% with an expense ratio of 0.03%.

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is a Corporate Bond fund that is issued by iShares. It currently has 40.23B total assets under management and has yielded an average annual return of 6.58% over the past 10 years. The fund has a dividend yield of 2.48% with an expense ratio of 0.14%.

BND’s dividend yield is 0.46% lower than that of LQD (2.02% vs. 2.48%). Also, BND yielded on average 2.48% less per year over the past decade (4.09% vs. 6.58%). The expense ratio of BND is 0.11 percentage points lower than LQD’s (0.03% vs. 0.14%).

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Fund Composition

Holdings

BND - Holdings

BND Bond SectorsWeight
AAA68.72%
BBB16.17%
A11.87%
AA3.34%
Below B0.01%
B0.0%
BB0.0%
US Government0.0%
Others-0.11%

BND’s Top Bond Sectors are ratings of AAA, BBB, A, AA, and Below B at 68.72%, 16.17%, 11.87%, 3.34%, and 0.01%. The fund is less weighted towards B (0.0%), BB (0.0%), and US Government (0.0%) rated bonds.

LQD - Holdings

LQD Bond SectorsWeight
BBB50.92%
A37.97%
AA8.49%
AAA2.7%
BB0.05%
Below B0.0%
B0.0%
US Government0.0%
Others-0.13%

LQD’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and BB at 50.92%, 37.97%, 8.49%, 2.7%, and 0.05%. The fund is less weighted towards Below B (0.0%), B (0.0%), and US Government (0.0%) rated bonds.

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Risk Analysis

BNDLQD
Mean Return0.280.47
R-squared99.3466.93
Std. Deviation3.145.94
Alpha-0.140.52
Beta1.041.62
Sharpe Ratio0.880.85
Treynor Ratio2.643.08

The Vanguard Total Bond Market Index Fund ETF Shares (BND) has a Beta of 1.04 with a Sharpe Ratio of 0.88 and a Treynor Ratio of 2.64. Its Mean Return is 0.28 while BND’s Standard Deviation is 3.14. Furthermore, the fund has a Alpha of -0.14 and a R-squared of 99.34.

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Standard Deviation of 5.94 with a Sharpe Ratio of 0.85 and a Beta of 1.62. Its Alpha is 0.52 while LQD’s R-squared is 66.93. Furthermore, the fund has a Mean Return of 0.47 and a Treynor Ratio of 3.08.

BND’s Mean Return is 0.19 points lower than that of LQD and its R-squared is 32.41 points higher. With a Standard Deviation of 3.14, BND is slightly less volatile than LQD. The Alpha and Beta of BND are 0.66 points lower and 0.58 points lower than LQD’s Alpha and Beta.

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Performance

Annual Returns

BND vs. LQD - Annual Returns

YearBNDLQD
20207.71%11.14%
20198.71%17.13%
2018-0.04%-3.76%
20173.62%7.16%
20162.57%5.97%
20150.39%-1.08%
20145.96%8.57%
2013-2.14%-2.49%
20124.04%11.68%
20117.71%8.89%
20106.51%9.15%

BND had its best year in 2019 with an annual return of 8.71%. BND’s worst year over the past decade yielded -2.14% and occurred in 2013. In most years the Vanguard Total Bond Market Index Fund ETF Shares provided moderate returns such as in 2017, 2012, and 2014 where annual returns amounted to 3.62%, 4.04%, and 5.96% respectively.

The year 2019 was the strongest year for LQD, returning 17.13% on an annual basis. The poorest year for LQD in the last ten years was 2018, with a yield of -3.76%. Most years the iShares iBoxx $ Investment Grade Corporate Bond ETF has given investors modest returns, such as in 2017, 2014, and 2011, when gains were 7.16%, 8.57%, and 8.89% respectively.

Portfolio Growth

BND vs. LQD - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
BND$10,000$15,4564.09%
LQD$10,000$19,7766.58%

A $10,000 investment in BND would have resulted in a final balance of $15,456. This is a profit of $5,456 over 11 years and amounts to a compound annual growth rate (CAGR) of 4.09%.

With a $10,000 investment in LQD, the end total would have been $19,776. This equates to a $9,776 profit over 11 years and a compound annual growth rate (CAGR) of 6.58%.

BND’s CAGR is 2.48 percentage points lower than that of LQD and as a result, would have yielded $4,320 less on a $10,000 investment. Thus, BND performed worse than LQD by 2.48% annually.


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