EFA vs. LQD: What’s The Difference?

The iShares MSCI EAFE ETF (EFA) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between EFA and LQD? And which fund is better?

The expense ratio of EFA is 0.18 percentage points higher than LQD’s (0.32% vs. 0.14%). EFA also has a high exposure to the financial services sector while LQD is mostly comprised of BBB bonds. Overall, EFA has provided lower returns than LQD over the past ten years.

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

Summary

EFA LQD
Name iShares MSCI EAFE ETF iShares iBoxx $ Investment Grade Corporate Bond ETF
Category Foreign Large Blend Corporate Bond
Issuer iShares iShares
AUM 56.77B 40.23B
Avg. Return 6.47% 6.58%
Div. Yield 2.28% 2.48%
Expense Ratio 0.32% 0.14%

The iShares MSCI EAFE ETF (EFA) is a Foreign Large Blend fund that is issued by iShares. It currently has 56.77B total assets under management and has yielded an average annual return of 6.47% over the past 10 years. The fund has a dividend yield of 2.28% with an expense ratio of 0.32%.

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%.

EFA’s dividend yield is 0.20% lower than that of LQD (2.28% vs. 2.48%). Also, EFA yielded on average 0.11% less per year over the past decade (6.47% vs. 6.58%). The expense ratio of EFA is 0.18 percentage points higher than LQD’s (0.32% vs. 0.14%).

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Fund Composition

Holdings

EFA - Holdings

EFA Holdings Weight
Nestle SA 2.11%
ASML Holding NV 1.69%
Roche Holding AG 1.55%
LVMH Moet Hennessy Louis Vuitton SE 1.28%
Novartis AG 1.19%
Toyota Motor Corp 1.09%
AstraZeneca PLC 0.92%
Unilever PLC 0.9%
AIA Group Ltd 0.88%
SAP SE 0.86%

EFA’s Top Holdings are Nestle SA, ASML Holding NV, Roche Holding AG, LVMH Moet Hennessy Louis Vuitton SE, and Novartis AG at 2.11%, 1.69%, 1.55%, 1.28%, and 1.19%.

Toyota Motor Corp (1.09%), AstraZeneca PLC (0.92%), and Unilever PLC (0.9%) have a slightly smaller but still significant weight. AIA Group Ltd and SAP SE are also represented in the EFA’s holdings at 0.88% and 0.86%.

LQD - Holdings

LQD Bond Sectors Weight
BBB 50.92%
A 37.97%
AA 8.49%
AAA 2.7%
BB 0.05%
Below B 0.0%
B 0.0%
US Government 0.0%
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

EFA LQD
Mean Return 0.57 0.47
R-squared 96.78 66.93
Std. Deviation 15.01 5.94
Alpha 0.47 0.52
Beta 0.98 1.62
Sharpe Ratio 0.41 0.85
Treynor Ratio 5.33 3.08

The iShares MSCI EAFE ETF (EFA) has a Mean Return of 0.57 with a Beta of 0.98 and a Sharpe Ratio of 0.41. Its Alpha is 0.47 while EFA’s R-squared is 96.78. Furthermore, the fund has a Treynor Ratio of 5.33 and a Standard Deviation of 15.01.

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

EFA’s Mean Return is 0.10 points higher than that of LQD and its R-squared is 29.85 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than LQD. The Alpha and Beta of EFA are 0.05 points lower and 0.64 points lower than LQD’s Alpha and Beta.

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Performance

Annual Returns

EFA vs. LQD - Annual Returns

Year EFA LQD
2020 7.92% 11.14%
2019 21.94% 17.13%
2018 -13.83% -3.76%
2017 24.94% 7.16%
2016 0.96% 5.97%
2015 -0.9% -1.08%
2014 -5.04% 8.57%
2013 22.62% -2.49%
2012 17.22% 11.68%
2011 -12.18% 8.89%
2010 7.52% 9.15%

EFA had its best year in 2017 with an annual return of 24.94%. EFA’s worst year over the past decade yielded -13.83% and occurred in 2018. In most years the iShares MSCI EAFE ETF provided moderate returns such as in 2016, 2010, and 2020 where annual returns amounted to 0.96%, 7.52%, and 7.92% 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

EFA vs. LQD - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EFA $10,000 $18,269 6.47%
LQD $10,000 $19,776 6.58%

A $10,000 investment in EFA would have resulted in a final balance of $18,269. This is a profit of $8,269 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.47%.

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%.

EFA’s CAGR is 0.11 percentage points lower than that of LQD and as a result, would have yielded $1,507 less on a $10,000 investment. Thus, EFA performed worse than LQD by 0.11% annually.


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