The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. HYG is a iShares High Yield Bond fund and TLT is a iShares Long Government fund. So, what’s the difference between HYG and TLT? And which fund is better?
The expense ratio of HYG is 0.33 percentage points higher than TLT’s (0.48% vs. 0.15%). HYG is mostly comprised of BB bonds and TLT has a high exposure to AAA bond. Overall, HYG has provided lower returns than TLT over the past 11 years.
In this article, we’ll compare HYG vs. TLT. We’ll look at industry exposure and risk metrics, as well as at their portfolio growth and annual returns. Moreover, I’ll also discuss HYG’s and TLT’s holdings, performance, and fund composition and examine how these affect their overall returns.
Summary
| HYG | TLT | |
| Name | iShares iBoxx $ High Yield Corporate Bond ETF | iShares 20+ Year Treasury Bond ETF |
| Category | High Yield Bond | Long Government |
| Issuer | iShares | iShares |
| AUM | 20.03B | 15.15B |
| Avg. Return | 6.42% | 9.00% |
| Div. Yield | 4.44% | 1.5% |
| Expense Ratio | 0.48% | 0.15% |
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.
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%.
HYG’s dividend yield is 2.94% higher than that of TLT (4.44% vs. 1.5%). Also, HYG yielded on average 2.58% less per year over the past decade (6.42% vs. 9.00%). The expense ratio of HYG is 0.33 percentage points higher than TLT’s (0.48% vs. 0.15%).
Fund Composition
Holdings
| HYG Bond Sectors | Weight |
| BB | 56.53% |
| B | 31.27% |
| Below B | 11.4% |
| BBB | 0.61% |
| AAA | 0.28% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
| Others | -0.09% |
HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
| 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
| HYG | TLT | |
| Mean Return | 0.46 | 0.63 |
| R-squared | 4.1 | 68.76 |
| Std. Deviation | 6.96 | 12.76 |
| Alpha | 3.58 | -2.83 |
| Beta | 0.48 | 3.54 |
| Sharpe Ratio | 0.7 | 0.55 |
| Treynor Ratio | 10.01 | 1.82 |
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a R-squared of 4.1 with a Standard Deviation of 6.96 and a Beta of 0.48. Its Sharpe Ratio is 0.7 while HYG’s Treynor Ratio is 10.01. Furthermore, the fund has a Mean Return of 0.46 and a Alpha of 3.58.
The iShares 20+ Year Treasury Bond ETF (TLT) has a Sharpe Ratio of 0.55 with a R-squared of 68.76 and a Mean Return of 0.63. Its Alpha is -2.83 while TLT’s Standard Deviation is 12.76. Furthermore, the fund has a Treynor Ratio of 1.82 and a Beta of 3.54.
HYG’s Mean Return is 0.17 points lower than that of TLT and its R-squared is 64.66 points lower. With a Standard Deviation of 6.96, HYG is slightly less volatile than TLT. The Alpha and Beta of HYG are 6.41 points higher and 3.06 points lower than TLT’s Alpha and Beta.
Performance
Annual Returns
| Year | HYG | TLT |
| 2020 | 4.12% | 17.92% |
| 2019 | 14.23% | 14.93% |
| 2018 | -1.93% | -2.07% |
| 2017 | 6.09% | 8.92% |
| 2016 | 13.92% | 1.36% |
| 2015 | -5.55% | -1.65% |
| 2014 | 2.0% | 27.35% |
| 2013 | 5.9% | -13.91% |
| 2012 | 13.83% | 3.25% |
| 2011 | 5.89% | 33.6% |
| 2010 | 12.07% | 9.25% |
HYG had its best year in 2019 with an annual return of 14.23%. HYG’s worst year over the past decade yielded -5.55% and occurred in 2015. In most years the iShares iBoxx $ High Yield Corporate Bond ETF provided moderate returns such as in 2011, 2013, and 2017 where annual returns amounted to 5.89%, 5.9%, and 6.09% 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
| Fund | Initial Balance | Final Balance | CAGR |
| HYG | $10,000 | $19,427 | 6.42% |
| TLT | $10,000 | $23,809 | 9.00% |
A $10,000 investment in HYG would have resulted in a final balance of $19,427. This is a profit of $9,427 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.42%.
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%.
HYG’s CAGR is 2.58 percentage points lower than that of TLT and as a result, would have yielded $4,382 less on a $10,000 investment. Thus, HYG performed worse than TLT by 2.58% annually.
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