The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares U.S. Treasury Bond ETF (GOVT) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and GOVT is a iShares Intermediate Government fund. So, what’s the difference between LQD and GOVT? And which fund is better?
The expense ratio of LQD is 0.09 percentage points higher than GOVT’s (0.14% vs. 0.05%). LQD is mostly comprised of BBB bonds and GOVT has a high exposure to AAA bond. Overall, LQD has provided higher returns than GOVT over the past ten years.
In this article, we’ll compare LQD vs. GOVT. We’ll look at portfolio growth and holdings, as well as at their fund composition and performance. Moreover, I’ll also discuss LQD’s and GOVT’s annual returns, risk metrics, and industry exposure and examine how these affect their overall returns.
|Name||iShares iBoxx $ Investment Grade Corporate Bond ETF||iShares U.S. Treasury Bond ETF|
|Category||Corporate Bond||Intermediate Government|
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 U.S. Treasury Bond ETF (GOVT) is a Intermediate Government fund that is issued by iShares. It currently has 17.07B total assets under management and has yielded an average annual return of 2.67% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.05%.
LQD’s dividend yield is 1.48% higher than that of GOVT (2.48% vs. 1.0%). Also, LQD yielded on average 3.90% more per year over the past decade (6.58% vs. 2.67%). The expense ratio of LQD is 0.09 percentage points higher than GOVT’s (0.14% vs. 0.05%).
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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.
|GOVT Bond Sectors||Weight|
GOVT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.
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The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Treynor Ratio of 3.08 with a Alpha of 0.52 and a R-squared of 66.93. Its Sharpe Ratio is 0.85 while LQD’s Mean Return is 0.47. Furthermore, the fund has a Beta of 1.62 and a Standard Deviation of 5.94.
The iShares U.S. Treasury Bond ETF (GOVT) has a Beta of 0 with a Mean Return of 0 and a Sharpe Ratio of 0. Its R-squared is 0 while GOVT’s Alpha is 0. Furthermore, the fund has a Treynor Ratio of 0 and a Standard Deviation of 0.
LQD’s Mean Return is 0.47 points higher than that of GOVT and its R-squared is 66.93 points higher. With a Standard Deviation of 5.94, LQD is slightly more volatile than GOVT. The Alpha and Beta of LQD are 0.52 points higher and 1.62 points higher than GOVT’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 2020 was the strongest year for GOVT, returning 7.92% on an annual basis. The poorest year for GOVT in the last ten years was 2013, with a yield of -2.84%. Most years the iShares U.S. Treasury Bond ETF has given investors modest returns, such as in 2018, 2015, and 2016, when gains were 0.74%, 0.76%, and 0.92% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in LQD would have resulted in a final balance of $14,898. This is a profit of $4,898 over 8 years and amounts to a compound annual growth rate (CAGR) of 6.58%.
With a $10,000 investment in GOVT, the end total would have been $12,297. This equates to a $2,297 profit over 8 years and a compound annual growth rate (CAGR) of 2.67%.
LQD’s CAGR is 3.90 percentage points higher than that of GOVT and as a result, would have yielded $2,601 more on a $10,000 investment. Thus, LQD outperformed GOVT by 3.90% annually.
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