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LQD vs. IEF: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and IEF is a iShares Long Government fund. So, what’s the difference between LQD and IEF? And which fund is better?

The expense ratio of LQD is 0.01 percentage points lower than IEF’s (0.14% vs. 0.15%). LQD is mostly comprised of BBB bonds and IEF has a high exposure to AAA bond. Overall, LQD has provided higher returns than IEF over the past ten years.

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

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Summary

LQDIEF
NameiShares iBoxx $ Investment Grade Corporate Bond ETFiShares 7-10 Year Treasury Bond ETF
CategoryCorporate BondLong Government
IssueriSharesiShares
AUM40.23B13.44B
Avg. Return6.58%5.06%
Div. Yield2.48%0.84%
Expense Ratio0.14%0.15%

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 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

LQD’s dividend yield is 1.64% higher than that of IEF (2.48% vs. 0.84%). Also, LQD yielded on average 1.52% more per year over the past decade (6.58% vs. 5.06%). The expense ratio of LQD is 0.01 percentage points lower than IEF’s (0.14% vs. 0.15%).

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Fund Composition

Holdings

LQD - Holdings

LQD Bond SectorsWeight
BBB50.92%
A37.97%
AA8.49%
AAA2.7%
BB0.05%
Below B0.0%
B0.0%
US Government0.0%
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.

IEF - Holdings

IEF Bond SectorsWeight
AAA100.0%
Others0.0%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

IEF’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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Risk Analysis

LQDIEF
Mean Return0.470.32
R-squared66.9377.56
Std. Deviation5.945.42
Alpha0.52-1.2
Beta1.621.59
Sharpe Ratio0.850.6
Treynor Ratio3.081.97

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

The iShares 7-10 Year Treasury Bond ETF (IEF) has a R-squared of 77.56 with a Alpha of -1.2 and a Sharpe Ratio of 0.6. Its Mean Return is 0.32 while IEF’s Treynor Ratio is 1.97. Furthermore, the fund has a Standard Deviation of 5.42 and a Beta of 1.59.

LQD’s Mean Return is 0.15 points higher than that of IEF and its R-squared is 10.63 points lower. With a Standard Deviation of 5.94, LQD is slightly more volatile than IEF. The Alpha and Beta of LQD are 1.72 points higher and 0.03 points higher than IEF’s Alpha and Beta.

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Performance

Annual Returns

LQD vs. IEF - Annual Returns

YearLQDIEF
202011.14%9.84%
201917.13%8.38%
2018-3.76%0.82%
20177.16%2.47%
20165.97%1.0%
2015-1.08%1.55%
20148.57%8.92%
2013-2.49%-6.12%
201211.68%4.06%
20118.89%15.46%
20109.15%9.29%

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 IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

LQD vs. IEF - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
LQD$10,000$19,7766.58%
IEF$10,000$16,9365.06%

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 IEF, the end total would have been $16,936. This equates to a $6,936 profit over 11 years and a compound annual growth rate (CAGR) of 5.06%.

LQD’s CAGR is 1.52 percentage points higher than that of IEF and as a result, would have yielded $2,840 more on a $10,000 investment. Thus, LQD outperformed IEF by 1.52% annually.


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