LQD vs. ACWI: What’s The Difference?

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

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

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

Summary

LQD ACWI
Name iShares iBoxx $ Investment Grade Corporate Bond ETF iShares MSCI ACWI ETF
Category Corporate Bond N/A
Issuer iShares iShares
AUM 40.23B 16.85B
Avg. Return 6.58% 10.21%
Div. Yield 2.48% 1.39%
Expense Ratio 0.14% 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%.

The iShares MSCI ACWI ETF (ACWI) is a N/A fund that is issued by iShares. It currently has 16.85B total assets under management and has yielded an average annual return of 10.21% over the past 10 years. The fund has a dividend yield of 1.39% with an expense ratio of 0.32%.

LQD’s dividend yield is 1.09% higher than that of ACWI (2.48% vs. 1.39%). Also, LQD yielded on average 3.64% less per year over the past decade (6.58% vs. 10.21%). The expense ratio of LQD is 0.18 percentage points lower than ACWI’s (0.14% vs. 0.32%).

Fund Composition

Holdings

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.

ACWI - Holdings

ACWI Holdings Weight
Apple Inc 3.44%
Microsoft Corp 2.91%
Amazon.com Inc 2.21%
Facebook Inc A 1.25%
Alphabet Inc Class C 1.12%
Alphabet Inc A 1.09%
Taiwan Semiconductor Manufacturing Co Ltd 0.79%
Tesla Inc 0.78%
NVIDIA Corp 0.74%
JPMorgan Chase & Co 0.71%

ACWI’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, and Alphabet Inc Class C at 3.44%, 2.91%, 2.21%, 1.25%, and 1.12%.

Alphabet Inc A (1.09%), Taiwan Semiconductor Manufacturing Co Ltd (0.79%), and Tesla Inc (0.78%) have a slightly smaller but still significant weight. NVIDIA Corp and JPMorgan Chase & Co are also represented in the ACWI’s holdings at 0.74% and 0.71%.

Risk Analysis

LQD ACWI
Mean Return 0.47 0.89
R-squared 66.93 99.96
Std. Deviation 5.94 14.05
Alpha 0.52 0.15
Beta 1.62 1
Sharpe Ratio 0.85 0.71
Treynor Ratio 3.08 9.45

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

The iShares MSCI ACWI ETF (ACWI) has a Sharpe Ratio of 0.71 with a Mean Return of 0.89 and a Beta of 1. Its Treynor Ratio is 9.45 while ACWI’s Standard Deviation is 14.05. Furthermore, the fund has a Alpha of 0.15 and a R-squared of 99.96.

LQD’s Mean Return is 0.42 points lower than that of ACWI and its R-squared is 33.03 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than ACWI. The Alpha and Beta of LQD are 0.37 points higher and 0.62 points higher than ACWI’s Alpha and Beta.

Performance

Annual Returns

LQD vs. ACWI - Annual Returns

Year LQD ACWI
2020 11.14% 16.38%
2019 17.13% 26.7%
2018 -3.76% -9.15%
2017 7.16% 24.35%
2016 5.97% 8.22%
2015 -1.08% -2.39%
2014 8.57% 4.64%
2013 -2.49% 22.91%
2012 11.68% 15.99%
2011 8.89% -7.6%
2010 9.15% 12.31%

LQD had its best year in 2019 with an annual return of 17.13%. LQD’s worst year over the past decade yielded -3.76% and occurred in 2018. In most years the iShares iBoxx $ Investment Grade Corporate Bond ETF provided moderate returns such as in 2017, 2014, and 2011 where annual returns amounted to 7.16%, 8.57%, and 8.89% respectively.

The year 2019 was the strongest year for ACWI, returning 26.7% on an annual basis. The poorest year for ACWI in the last ten years was 2018, with a yield of -9.15%. Most years the iShares MSCI ACWI ETF has given investors modest returns, such as in 2016, 2010, and 2012, when gains were 8.22%, 12.31%, and 15.99% respectively.

Portfolio Growth

LQD vs. ACWI - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
ACWI $10,000 $27,241 10.21%

A $10,000 investment in LQD would have resulted in a final balance of $19,776. This is a profit of $9,776 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.58%.

With a $10,000 investment in ACWI, the end total would have been $27,241. This equates to a $17,241 profit over 11 years and a compound annual growth rate (CAGR) of 10.21%.

LQD’s CAGR is 3.64 percentage points lower than that of ACWI and as a result, would have yielded $7,465 less on a $10,000 investment. Thus, LQD performed worse than ACWI by 3.64% annually.


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