LQD vs. MBB: What’s The Difference?

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

The expense ratio of LQD is 0.08 percentage points higher than MBB’s (0.14% vs. 0.06%). LQD is mostly comprised of BBB bonds and MBB has a high exposure to AAA bond. Overall, LQD has provided higher returns than MBB over the past ten years.

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

Summary

LQD MBB
Name iShares iBoxx $ Investment Grade Corporate Bond ETF iShares MBS ETF
Category Corporate Bond Intermediate Government
Issuer iShares iShares
AUM 40.23B 25.69B
Avg. Return 6.58% 3.08%
Div. Yield 2.48% 1.88%
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 MBS ETF (MBB) is a Intermediate Government fund that is issued by iShares. It currently has 25.69B total assets under management and has yielded an average annual return of 3.08% over the past 10 years. The fund has a dividend yield of 1.88% with an expense ratio of 0.06%.

LQD’s dividend yield is 0.60% higher than that of MBB (2.48% vs. 1.88%). Also, LQD yielded on average 3.50% more per year over the past decade (6.58% vs. 3.08%). The expense ratio of LQD is 0.08 percentage points higher than MBB’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.

MBB - Holdings

MBB Bond Sectors Weight
AAA 99.51%
Others 0.49%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

MBB’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.51%, 0.49%, 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.

Risk Analysis

LQD MBB
Mean Return 0.47 0.2
R-squared 66.93 74.38
Std. Deviation 5.94 2.12
Alpha 0.52 0.14
Beta 1.62 0.6
Sharpe Ratio 0.85 0.87
Treynor Ratio 3.08 3.02

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

The iShares MBS ETF (MBB) has a Mean Return of 0.2 with a Standard Deviation of 2.12 and a Beta of 0.6. Its R-squared is 74.38 while MBB’s Alpha is 0.14. Furthermore, the fund has a Sharpe Ratio of 0.87 and a Treynor Ratio of 3.02.

LQD’s Mean Return is 0.27 points higher than that of MBB and its R-squared is 7.45 points lower. With a Standard Deviation of 5.94, LQD is slightly more volatile than MBB. The Alpha and Beta of LQD are 0.38 points higher and 1.02 points higher than MBB’s Alpha and Beta.

Performance

Annual Returns

LQD vs. MBB - Annual Returns

Year LQD MBB
2020 11.14% 4.03%
2019 17.13% 6.27%
2018 -3.76% 0.81%
2017 7.16% 2.37%
2016 5.97% 1.28%
2015 -1.08% 1.28%
2014 8.57% 6.16%
2013 -2.49% -1.92%
2012 11.68% 2.23%
2011 8.89% 5.88%
2010 9.15% 5.44%

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 MBB, returning 6.27% on an annual basis. The poorest year for MBB in the last ten years was 2013, with a yield of -1.92%. Most years the iShares MBS ETF has given investors modest returns, such as in 2012, 2017, and 2020, when gains were 2.23%, 2.37%, and 4.03% respectively.

Portfolio Growth

LQD vs. MBB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
MBB $10,000 $13,906 3.08%

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 MBB, the end total would have been $13,906. This equates to a $3,906 profit over 11 years and a compound annual growth rate (CAGR) of 3.08%.

LQD’s CAGR is 3.50 percentage points higher than that of MBB and as a result, would have yielded $5,870 more on a $10,000 investment. Thus, LQD outperformed MBB by 3.50% annually.


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