LQD vs. HYG: What’s The Difference?

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

The expense ratio of LQD is 0.34 percentage points lower than HYG’s (0.14% vs. 0.48%). LQD is mostly comprised of BBB bonds and HYG has a high exposure to BB bond. Overall, LQD has provided higher returns than HYG over the past ten years.

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

Summary

LQD HYG
Name iShares iBoxx $ Investment Grade Corporate Bond ETF iShares iBoxx $ High Yield Corporate Bond ETF
Category Corporate Bond High Yield Bond
Issuer iShares iShares
AUM 40.23B 20.03B
Avg. Return 6.58% 6.42%
Div. Yield 2.48% 4.44%
Expense Ratio 0.14% 0.48%

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 iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.

LQD’s dividend yield is 1.96% lower than that of HYG (2.48% vs. 4.44%). Also, LQD yielded on average 0.16% more per year over the past decade (6.58% vs. 6.42%). The expense ratio of LQD is 0.34 percentage points lower than HYG’s (0.14% vs. 0.48%).

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.

HYG - Holdings

HYG Bond Sectors Weight
BB 56.53%
B 31.27%
Below B 11.4%
BBB 0.61%
AAA 0.28%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.09%

HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

Risk Analysis

LQD HYG
Mean Return 0.47 0.46
R-squared 66.93 4.1
Std. Deviation 5.94 6.96
Alpha 0.52 3.58
Beta 1.62 0.48
Sharpe Ratio 0.85 0.7
Treynor Ratio 3.08 10.01

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 Mean Return is 0.47 while LQD’s Beta is 1.62. Furthermore, the fund has a Standard Deviation of 5.94 and a Sharpe Ratio of 0.85.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Standard Deviation of 6.96 with a Alpha of 3.58 and a Beta of 0.48. Its Sharpe Ratio is 0.7 while HYG’s Mean Return is 0.46. Furthermore, the fund has a Treynor Ratio of 10.01 and a R-squared of 4.1.

LQD’s Mean Return is 0.01 points higher than that of HYG and its R-squared is 62.83 points higher. With a Standard Deviation of 5.94, LQD is slightly less volatile than HYG. The Alpha and Beta of LQD are 3.06 points lower and 1.14 points higher than HYG’s Alpha and Beta.

Performance

Annual Returns

LQD vs. HYG - Annual Returns

Year LQD HYG
2020 11.14% 4.12%
2019 17.13% 14.23%
2018 -3.76% -1.93%
2017 7.16% 6.09%
2016 5.97% 13.92%
2015 -1.08% -5.55%
2014 8.57% 2.0%
2013 -2.49% 5.9%
2012 11.68% 13.83%
2011 8.89% 5.89%
2010 9.15% 12.07%

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 HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.

Portfolio Growth

LQD vs. HYG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
HYG $10,000 $19,427 6.42%

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 HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.

LQD’s CAGR is 0.16 percentage points higher than that of HYG and as a result, would have yielded $349 more on a $10,000 investment. Thus, LQD outperformed HYG by 0.16% annually.


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