The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the Dimensional U.S. Core Equity 2 ETF (DFAC) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and DFAC is a Dimensional Fund Advisors Large Blend fund. So, what’s the difference between LQD and DFAC? And which fund is better?
The expense ratio of LQD is 0.05 percentage points lower than DFAC’s (0.14% vs. 0.19%). LQD is mostly comprised of BBB bonds while DFAC has a high exposure to the technology sector. Overall, LQD has provided lower returns than DFAC over the past ten years.
In this article, we’ll compare LQD vs. DFAC. We’ll look at performance and risk metrics, as well as at their industry exposure and holdings. Moreover, I’ll also discuss LQD’s and DFAC’s fund composition, portfolio growth, and annual returns and examine how these affect their overall returns.
|Name||iShares iBoxx $ Investment Grade Corporate Bond ETF||Dimensional U.S. Core Equity 2 ETF|
|Category||Corporate Bond||Large Blend|
|Issuer||iShares||Dimensional Fund Advisors|
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 Dimensional U.S. Core Equity 2 ETF (DFAC) is a Large Blend fund that is issued by Dimensional Fund Advisors. It currently has 13.53B total assets under management and has yielded an average annual return of 13.93% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.19%.
LQD’s dividend yield is 1.48% higher than that of DFAC (2.48% vs. 1.0%). Also, LQD yielded on average 7.35% less per year over the past decade (6.58% vs. 13.93%). The expense ratio of LQD is 0.05 percentage points lower than DFAC’s (0.14% vs. 0.19%).
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|LQD Bond Sectors||Weight|
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.
|Johnson & Johnson||1.05%|
|Facebook Inc Class A||1.05%|
|JPMorgan Chase & Co||1.0%|
|Alphabet Inc Class C||0.85%|
|Alphabet Inc Class A||0.84%|
|Berkshire Hathaway Inc Class B||0.75%|
|Visa Inc Class A||0.74%|
DFAC’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Johnson & Johnson, and Facebook Inc Class A at 4.7%, 3.81%, 2.39%, 1.05%, and 1.05%.
JPMorgan Chase & Co (1.0%), Alphabet Inc Class C (0.85%), and Alphabet Inc Class A (0.84%) have a slightly smaller but still significant weight. Berkshire Hathaway Inc Class B and Visa Inc Class A are also represented in the DFAC’s holdings at 0.75% and 0.74%.
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The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Mean Return of 0.47 with a R-squared of 66.93 and a Beta of 1.62. Its Standard Deviation is 5.94 while LQD’s Alpha is 0.52. Furthermore, the fund has a Sharpe Ratio of 0.85 and a Treynor Ratio of 3.08.
The Dimensional U.S. Core Equity 2 ETF (DFAC) has a Beta of 1.12 with a R-squared of 95.1 and a Alpha of -2.75. Its Treynor Ratio is 11.85 while DFAC’s Mean Return is 1.19. Furthermore, the fund has a Standard Deviation of 15.55 and a Sharpe Ratio of 0.88.
LQD’s Mean Return is 0.72 points lower than that of DFAC and its R-squared is 28.17 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than DFAC. The Alpha and Beta of LQD are 3.27 points higher and 0.50 points higher than DFAC’s Alpha and Beta.
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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 2013 was the strongest year for DFAC, returning 37.55% on an annual basis. The poorest year for DFAC in the last ten years was 2018, with a yield of -9.43%. Most years the Dimensional U.S. Core Equity 2 ETF has given investors modest returns, such as in 2020, 2016, and 2012, when gains were 15.8%, 16.31%, and 17.93% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
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 DFAC, the end total would have been $38,796. This equates to a $28,796 profit over 11 years and a compound annual growth rate (CAGR) of 13.93%.
LQD’s CAGR is 7.35 percentage points lower than that of DFAC and as a result, would have yielded $19,020 less on a $10,000 investment. Thus, LQD performed worse than DFAC by 7.35% annually.
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