LQD vs. BIV: What’s The Difference?

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

The expense ratio of LQD is 0.09 percentage points higher than BIV’s (0.14% vs. 0.05%). LQD is mostly comprised of BBB bonds and BIV has a high exposure to AAA bond. Overall, LQD has provided higher returns than BIV over the past ten years.

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

Summary

LQD BIV
Name iShares iBoxx $ Investment Grade Corporate Bond ETF Vanguard Intermediate-Term Bond Index Fund ETF Shares
Category Corporate Bond Intermediate-Term Bond
Issuer iShares Vanguard
AUM 40.23B 39.05B
Avg. Return 6.58% 5.31%
Div. Yield 2.48% 2.06%
Expense Ratio 0.14% 0.05%

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 Vanguard Intermediate-Term Bond Index Fund ETF Shares (BIV) is a Intermediate-Term Bond fund that is issued by Vanguard. It currently has 39.05B total assets under management and has yielded an average annual return of 5.31% over the past 10 years. The fund has a dividend yield of 2.06% with an expense ratio of 0.05%.

LQD’s dividend yield is 0.42% higher than that of BIV (2.48% vs. 2.06%). Also, LQD yielded on average 1.26% more per year over the past decade (6.58% vs. 5.31%). The expense ratio of LQD is 0.09 percentage points higher than BIV’s (0.14% vs. 0.05%).

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.

BIV - Holdings

BIV Bond Sectors Weight
AAA 54.51%
BBB 25.24%
A 16.97%
AA 3.1%
Others 0.15%
Below B 0.03%
B 0.0%
BB 0.0%
US Government 0.0%

BIV’s Top Bond Sectors are ratings of AAA, BBB, A, AA, and Others at 54.51%, 25.24%, 16.97%, 3.1%, and 0.15%. The fund is less weighted towards Below B (0.03%), B (0.0%), and BB (0.0%) rated bonds.

Risk Analysis

LQD BIV
Mean Return 0.47 0.35
R-squared 66.93 95.12
Std. Deviation 5.94 4.09
Alpha 0.52 -0.07
Beta 1.62 1.33
Sharpe Ratio 0.85 0.89
Treynor Ratio 3.08 2.72

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

The Vanguard Intermediate-Term Bond Index Fund ETF Shares (BIV) has a Sharpe Ratio of 0.89 with a Beta of 1.33 and a Mean Return of 0.35. Its R-squared is 95.12 while BIV’s Treynor Ratio is 2.72. Furthermore, the fund has a Alpha of -0.07 and a Standard Deviation of 4.09.

LQD’s Mean Return is 0.12 points higher than that of BIV and its R-squared is 28.19 points lower. With a Standard Deviation of 5.94, LQD is slightly more volatile than BIV. The Alpha and Beta of LQD are 0.59 points higher and 0.29 points higher than BIV’s Alpha and Beta.

Performance

Annual Returns

LQD vs. BIV - Annual Returns

Year LQD BIV
2020 11.14% 9.71%
2019 17.13% 10.19%
2018 -3.76% -0.09%
2017 7.16% 3.8%
2016 5.97% 2.86%
2015 -1.08% 1.23%
2014 8.57% 7.0%
2013 -2.49% -3.44%
2012 11.68% 7.02%
2011 8.89% 10.62%
2010 9.15% 9.55%

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 2011 was the strongest year for BIV, returning 10.62% on an annual basis. The poorest year for BIV in the last ten years was 2013, with a yield of -3.44%. Most years the Vanguard Intermediate-Term Bond Index Fund ETF Shares has given investors modest returns, such as in 2017, 2014, and 2012, when gains were 3.8%, 7.0%, and 7.02% respectively.

Portfolio Growth

LQD vs. BIV - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
BIV $10,000 $17,492 5.31%

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 BIV, the end total would have been $17,492. This equates to a $7,492 profit over 11 years and a compound annual growth rate (CAGR) of 5.31%.

LQD’s CAGR is 1.26 percentage points higher than that of BIV and as a result, would have yielded $2,284 more on a $10,000 investment. Thus, LQD outperformed BIV by 1.26% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply