IWM vs. LQD: What’s The Difference?

The iShares Russell 2000 ETF (IWM) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. IWM is a iShares Small Blend fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between IWM and LQD? And which fund is better?

The expense ratio of IWM is 0.05 percentage points higher than LQD’s (0.19% vs. 0.14%). IWM also has a high exposure to the healthcare sector while LQD is mostly comprised of BBB bonds. Overall, IWM has provided higher returns than LQD over the past ten years.

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

Summary

IWM LQD
Name iShares Russell 2000 ETF iShares iBoxx $ Investment Grade Corporate Bond ETF
Category Small Blend Corporate Bond
Issuer iShares iShares
AUM 66.48B 40.23B
Avg. Return 13.52% 6.58%
Div. Yield 0.86% 2.48%
Expense Ratio 0.19% 0.14%

The iShares Russell 2000 ETF (IWM) is a Small Blend fund that is issued by iShares. It currently has 66.48B total assets under management and has yielded an average annual return of 13.52% over the past 10 years. The fund has a dividend yield of 0.86% with an expense ratio of 0.19%.

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%.

IWM’s dividend yield is 1.62% lower than that of LQD (0.86% vs. 2.48%). Also, IWM yielded on average 6.94% more per year over the past decade (13.52% vs. 6.58%). The expense ratio of IWM is 0.05 percentage points higher than LQD’s (0.19% vs. 0.14%).

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Fund Composition

Holdings

IWM - Holdings

IWM Holdings Weight
AMC Entertainment Holdings Inc Class A 0.52%
Intellia Therapeutics Inc 0.33%
Crocs Inc 0.3%
BlackRock Cash Funds Treasury SL Agency 0.29%
Tenet Healthcare Corp 0.26%
Lattice Semiconductor Corp 0.26%
Tetra Tech Inc 0.25%
II-VI Inc 0.25%
EastGroup Properties Inc 0.24%
Arrowhead Pharmaceuticals Inc 0.24%

IWM’s Top Holdings are AMC Entertainment Holdings Inc Class A, Intellia Therapeutics Inc, Crocs Inc, BlackRock Cash Funds Treasury SL Agency, and Tenet Healthcare Corp at 0.52%, 0.33%, 0.3%, 0.29%, and 0.26%.

Lattice Semiconductor Corp (0.26%), Tetra Tech Inc (0.25%), and II-VI Inc (0.25%) have a slightly smaller but still significant weight. EastGroup Properties Inc and Arrowhead Pharmaceuticals Inc are also represented in the IWM’s holdings at 0.24% and 0.24%.

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

IWM LQD
Mean Return 1.12 0.47
R-squared 77.73 66.93
Std. Deviation 18.87 5.94
Alpha -5.12 0.52
Beta 1.23 1.62
Sharpe Ratio 0.68 0.85
Treynor Ratio 9.56 3.08

The iShares Russell 2000 ETF (IWM) has a Mean Return of 1.12 with a Sharpe Ratio of 0.68 and a Standard Deviation of 18.87. Its Beta is 1.23 while IWM’s R-squared is 77.73. Furthermore, the fund has a Treynor Ratio of 9.56 and a Alpha of -5.12.

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

IWM’s Mean Return is 0.65 points higher than that of LQD and its R-squared is 10.80 points higher. With a Standard Deviation of 18.87, IWM is slightly more volatile than LQD. The Alpha and Beta of IWM are 5.64 points lower and 0.39 points lower than LQD’s Alpha and Beta.

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Performance

Annual Returns

IWM vs. LQD - Annual Returns

Year IWM LQD
2020 19.89% 11.14%
2019 25.42% 17.13%
2018 -11.02% -3.76%
2017 14.66% 7.16%
2016 21.36% 5.97%
2015 -4.33% -1.08%
2014 4.94% 8.57%
2013 38.85% -2.49%
2012 16.39% 11.68%
2011 -4.19% 8.89%
2010 26.76% 9.15%

IWM had its best year in 2013 with an annual return of 38.85%. IWM’s worst year over the past decade yielded -11.02% and occurred in 2018. In most years the iShares Russell 2000 ETF provided moderate returns such as in 2017, 2012, and 2020 where annual returns amounted to 14.66%, 16.39%, and 19.89% 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

IWM vs. LQD - Portfolio Growth

Fund Initial Balance Final Balance CAGR
IWM $10,000 $36,686 13.52%
LQD $10,000 $19,776 6.58%

A $10,000 investment in IWM would have resulted in a final balance of $36,686. This is a profit of $26,686 over 11 years and amounts to a compound annual growth rate (CAGR) of 13.52%.

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%.

IWM’s CAGR is 6.94 percentage points higher than that of LQD and as a result, would have yielded $16,910 more on a $10,000 investment. Thus, IWM outperformed LQD by 6.94% annually.


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