LQD vs. IGSB: What’s The Difference?

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%).

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.

IGSB - Holdings

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.

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.

Performance

Annual Returns

LQD vs. IGSB - 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

LQD vs. IGSB - 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.


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