LQD vs. IWS: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares Russell Mid-Cap Value ETF (IWS) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and IWS is a iShares Mid-Cap Value fund. So, what’s the difference between LQD and IWS? And which fund is better?

The expense ratio of LQD is 0.09 percentage points lower than IWS’s (0.14% vs. 0.23%). LQD is mostly comprised of BBB bonds while IWS has a high exposure to the financial services sector. Overall, LQD has provided lower returns than IWS over the past ten years.

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

Summary

LQD IWS
Name iShares iBoxx $ Investment Grade Corporate Bond ETF iShares Russell Mid-Cap Value ETF
Category Corporate Bond Mid-Cap Value
Issuer iShares iShares
AUM 40.23B 14.24B
Avg. Return 6.58% 12.35%
Div. Yield 2.48% 1.34%
Expense Ratio 0.14% 0.23%

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 Russell Mid-Cap Value ETF (IWS) is a Mid-Cap Value fund that is issued by iShares. It currently has 14.24B total assets under management and has yielded an average annual return of 12.35% over the past 10 years. The fund has a dividend yield of 1.34% with an expense ratio of 0.23%.

LQD’s dividend yield is 1.14% higher than that of IWS (2.48% vs. 1.34%). Also, LQD yielded on average 5.77% less per year over the past decade (6.58% vs. 12.35%). The expense ratio of LQD is 0.09 percentage points lower than IWS’s (0.14% vs. 0.23%).

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.

IWS - Holdings

IWS Holdings Weight
Twitter Inc 0.69%
Marvell Technology Inc 0.69%
IHS Markit Ltd 0.62%
Prudential Financial Inc 0.56%
Otis Worldwide Corp Ordinary Shares 0.54%
International Flavors & Fragrances Inc 0.53%
Xcel Energy Inc 0.52%
Motorola Solutions Inc 0.52%
Aptiv PLC 0.52%
Aflac Inc 0.52%

IWS’s Top Holdings are Twitter Inc, Marvell Technology Inc, IHS Markit Ltd, Prudential Financial Inc, and Otis Worldwide Corp Ordinary Shares at 0.69%, 0.69%, 0.62%, 0.56%, and 0.54%.

International Flavors & Fragrances Inc (0.53%), Xcel Energy Inc (0.52%), and Motorola Solutions Inc (0.52%) have a slightly smaller but still significant weight. Aptiv PLC and Aflac Inc are also represented in the IWS’s holdings at 0.52% and 0.52%.

Risk Analysis

LQD IWS
Mean Return 0.47 1.06
R-squared 66.93 87.04
Std. Deviation 5.94 16.03
Alpha 0.52 -4.11
Beta 1.62 1.1
Sharpe Ratio 0.85 0.75
Treynor Ratio 3.08 10.3

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

The iShares Russell Mid-Cap Value ETF (IWS) has a Alpha of -4.11 with a Beta of 1.1 and a Standard Deviation of 16.03. Its R-squared is 87.04 while IWS’s Treynor Ratio is 10.3. Furthermore, the fund has a Mean Return of 1.06 and a Sharpe Ratio of 0.75.

LQD’s Mean Return is 0.59 points lower than that of IWS and its R-squared is 20.11 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than IWS. The Alpha and Beta of LQD are 4.63 points higher and 0.52 points higher than IWS’s Alpha and Beta.

Performance

Annual Returns

LQD vs. IWS - Annual Returns

Year LQD IWS
2020 11.14% 4.76%
2019 17.13% 26.78%
2018 -3.76% -12.36%
2017 7.16% 13.1%
2016 5.97% 19.69%
2015 -1.08% -4.93%
2014 8.57% 14.49%
2013 -2.49% 33.11%
2012 11.68% 18.27%
2011 8.89% -1.55%
2010 9.15% 24.46%

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 2013 was the strongest year for IWS, returning 33.11% on an annual basis. The poorest year for IWS in the last ten years was 2018, with a yield of -12.36%. Most years the iShares Russell Mid-Cap Value ETF has given investors modest returns, such as in 2017, 2014, and 2012, when gains were 13.1%, 14.49%, and 18.27% respectively.

Portfolio Growth

LQD vs. IWS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
IWS $10,000 $33,083 12.35%

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 IWS, the end total would have been $33,083. This equates to a $23,083 profit over 11 years and a compound annual growth rate (CAGR) of 12.35%.

LQD’s CAGR is 5.77 percentage points lower than that of IWS and as a result, would have yielded $13,307 less on a $10,000 investment. Thus, LQD performed worse than IWS by 5.77% annually.


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