LQD vs. EMB: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and EMB is a iShares Emerging Markets Bond fund. So, what’s the difference between LQD and EMB? And which fund is better?

The expense ratio of LQD is 0.25 percentage points lower than EMB’s (0.14% vs. 0.39%). LQD is mostly comprised of BBB bonds and EMB has a high exposure to BBB bond. Overall, LQD has provided higher returns than EMB over the past ten years.

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

Summary

LQD EMB
Name iShares iBoxx $ Investment Grade Corporate Bond ETF iShares J.P. Morgan USD Emerging Markets Bond ETF
Category Corporate Bond Emerging Markets Bond
Issuer iShares iShares
AUM 40.23B 19.76B
Avg. Return 6.58% 6.43%
Div. Yield 2.48% 3.85%
Expense Ratio 0.14% 0.39%

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 J.P. Morgan USD Emerging Markets Bond ETF (EMB) is a Emerging Markets Bond fund that is issued by iShares. It currently has 19.76B total assets under management and has yielded an average annual return of 6.43% over the past 10 years. The fund has a dividend yield of 3.85% with an expense ratio of 0.39%.

LQD’s dividend yield is 1.37% lower than that of EMB (2.48% vs. 3.85%). Also, LQD yielded on average 0.14% more per year over the past decade (6.58% vs. 6.43%). The expense ratio of LQD is 0.25 percentage points lower than EMB’s (0.14% vs. 0.39%).

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.

EMB - Holdings

EMB Bond Sectors Weight
BBB 33.79%
B 21.97%
BB 16.92%
A 13.67%
AA 7.97%
Below B 4.49%
Others 1.11%
AAA 0.09%
US Government 0.0%

EMB’s Top Bond Sectors are ratings of BBB, B, BB, A, and AA at 33.79%, 21.97%, 16.92%, 13.67%, and 7.97%. The fund is less weighted towards Below B (4.49%), Others (1.11%), and AAA (0.09%) rated bonds.

Risk Analysis

LQD EMB
Mean Return 0.47 0.44
R-squared 66.93 23.34
Std. Deviation 5.94 8.44
Alpha 0.52 0.89
Beta 1.62 1.36
Sharpe Ratio 0.85 0.55
Treynor Ratio 3.08 3.24

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

The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has a Beta of 1.36 with a Standard Deviation of 8.44 and a Mean Return of 0.44. Its Alpha is 0.89 while EMB’s Sharpe Ratio is 0.55. Furthermore, the fund has a R-squared of 23.34 and a Treynor Ratio of 3.24.

LQD’s Mean Return is 0.03 points higher than that of EMB and its R-squared is 43.59 points higher. With a Standard Deviation of 5.94, LQD is slightly less volatile than EMB. The Alpha and Beta of LQD are 0.37 points lower and 0.26 points higher than EMB’s Alpha and Beta.

Performance

Annual Returns

LQD vs. EMB - Annual Returns

Year LQD EMB
2020 11.14% 5.48%
2019 17.13% 15.57%
2018 -3.76% -5.67%
2017 7.16% 9.98%
2016 5.97% 9.41%
2015 -1.08% 0.43%
2014 8.57% 6.69%
2013 -2.49% -7.42%
2012 11.68% 17.64%
2011 8.89% 7.2%
2010 9.15% 11.47%

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 2012 was the strongest year for EMB, returning 17.64% on an annual basis. The poorest year for EMB in the last ten years was 2013, with a yield of -7.42%. Most years the iShares J.P. Morgan USD Emerging Markets Bond ETF has given investors modest returns, such as in 2014, 2011, and 2016, when gains were 6.69%, 7.2%, and 9.41% respectively.

Portfolio Growth

LQD vs. EMB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
EMB $10,000 $19,295 6.43%

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 EMB, the end total would have been $19,295. This equates to a $9,295 profit over 11 years and a compound annual growth rate (CAGR) of 6.43%.

LQD’s CAGR is 0.14 percentage points higher than that of EMB and as a result, would have yielded $481 more on a $10,000 investment. Thus, LQD outperformed EMB by 0.14% annually.


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