The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and IGSB is a iShares Short-Term Bond fund. So, what’s the difference between LQD and IGSB? And which fund is better?
The expense ratio of LQD is 0.08 percentage points higher than IGSB’s (0.14% vs. 0.06%). LQD is mostly comprised of BBB bonds and IGSB has a high exposure to BBB bond. Overall, LQD has provided higher returns than IGSB over the past ten years.
In this article, we’ll compare LQD vs. IGSB. We’ll look at portfolio growth and annual returns, as well as at their holdings and fund composition. Moreover, I’ll also discuss LQD’s and IGSB’s performance, risk metrics, and industry exposure and examine how these affect their overall returns.
Summary
| LQD | IGSB | |
| Name | iShares iBoxx $ Investment Grade Corporate Bond ETF | iShares 1-5 Year Investment Grade Corporate Bond ETF |
| Category | Corporate Bond | Short-Term Bond |
| Issuer | iShares | iShares |
| AUM | 40.23B | 26.63B |
| Avg. Return | 6.58% | 2.51% |
| Div. Yield | 2.48% | 2.02% |
| Expense Ratio | 0.14% | 0.06% |
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 1-5 Year Investment Grade Corporate Bond ETF (IGSB) is a Short-Term Bond fund that is issued by iShares. It currently has 26.63B total assets under management and has yielded an average annual return of 2.51% over the past 10 years. The fund has a dividend yield of 2.02% with an expense ratio of 0.06%.
LQD’s dividend yield is 0.46% higher than that of IGSB (2.48% vs. 2.02%). Also, LQD yielded on average 4.07% more per year over the past decade (6.58% vs. 2.51%). The expense ratio of LQD is 0.08 percentage points higher than IGSB’s (0.14% vs. 0.06%).
FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).
Fund Composition
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.
| IGSB Bond Sectors | Weight |
| BBB | 50.48% |
| A | 40.04% |
| AA | 7.46% |
| AAA | 2.21% |
| BB | 0.09% |
| Below B | 0.0% |
| B | 0.0% |
| US Government | 0.0% |
| Others | -0.28% |
IGSB’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and BB at 50.48%, 40.04%, 7.46%, 2.21%, and 0.09%. The fund is less weighted towards Below B (0.0%), B (0.0%), and US Government (0.0%) rated bonds.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
Risk Analysis
| LQD | IGSB | |
| Mean Return | 0.47 | 0.19 |
| R-squared | 66.93 | 26.13 |
| Std. Deviation | 5.94 | 2 |
| Alpha | 0.52 | 0.69 |
| Beta | 1.62 | 0.34 |
| Sharpe Ratio | 0.85 | 0.82 |
| Treynor Ratio | 3.08 | 4.82 |
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Treynor Ratio of 3.08 with a R-squared of 66.93 and a Alpha of 0.52. Its Sharpe Ratio is 0.85 while LQD’s Standard Deviation is 5.94. Furthermore, the fund has a Beta of 1.62 and a Mean Return of 0.47.
The iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) has a Mean Return of 0.19 with a Beta of 0.34 and a Standard Deviation of 2. Its Treynor Ratio is 4.82 while IGSB’s Alpha is 0.69. Furthermore, the fund has a Sharpe Ratio of 0.82 and a R-squared of 26.13.
LQD’s Mean Return is 0.28 points higher than that of IGSB and its R-squared is 40.80 points higher. With a Standard Deviation of 5.94, LQD is slightly more volatile than IGSB. The Alpha and Beta of LQD are 0.17 points lower and 1.28 points higher than IGSB’s Alpha and Beta.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
Performance
Annual Returns
| Year | LQD | IGSB |
| 2020 | 11.14% | 5.26% |
| 2019 | 17.13% | 7.01% |
| 2018 | -3.76% | 1.34% |
| 2017 | 7.16% | 1.41% |
| 2016 | 5.97% | 1.77% |
| 2015 | -1.08% | 0.7% |
| 2014 | 8.57% | 0.74% |
| 2013 | -2.49% | 1.03% |
| 2012 | 11.68% | 3.28% |
| 2011 | 8.89% | 1.34% |
| 2010 | 9.15% | 3.69% |
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 IGSB, returning 7.01% on an annual basis. The poorest year for IGSB in the last ten years was 2015, with a yield of 0.7%. Most years the iShares 1-5 Year Investment Grade Corporate Bond ETF has given investors modest returns, such as in 2011, 2017, and 2016, when gains were 1.34%, 1.41%, and 1.77% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| LQD | $10,000 | $19,776 | 6.58% |
| IGSB | $10,000 | $13,103 | 2.51% |
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 IGSB, the end total would have been $13,103. This equates to a $3,103 profit over 11 years and a compound annual growth rate (CAGR) of 2.51%.
LQD’s CAGR is 4.07 percentage points higher than that of IGSB and as a result, would have yielded $6,673 more on a $10,000 investment. Thus, LQD outperformed IGSB by 4.07% annually.
Current recommendations:
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.
I started this blog because I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
To track my progress towards complete financial independence I use Personal Capital. Most of my monthly surplus I invest in Vanguard ETFs with M1 Finance. I use the dividends (plus their 'borrow' option) to invest in real estate deals with Fundrise.
Finally, I invest the real estate distributions into startups using Mainvest and high-yield real estate debt with Groundfloor.
