LQD vs. MDY: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the SPDR S&P MIDCAP 400 ETF Trust (MDY) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and MDY is a SPDR State Street Global Advisors Mid-Cap Blend fund. So, what’s the difference between LQD and MDY? And which fund is better?

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

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

Summary

LQD MDY
Name iShares iBoxx $ Investment Grade Corporate Bond ETF SPDR S&P MIDCAP 400 ETF Trust
Category Corporate Bond Mid-Cap Blend
Issuer iShares SPDR State Street Global Advisors
AUM 40.23B 21.31B
Avg. Return 6.58% 13.29%
Div. Yield 2.48% 0.94%
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 SPDR S&P MIDCAP 400 ETF Trust (MDY) is a Mid-Cap Blend fund that is issued by SPDR State Street Global Advisors. It currently has 21.31B total assets under management and has yielded an average annual return of 13.29% over the past 10 years. The fund has a dividend yield of 0.94% with an expense ratio of 0.23%.

LQD’s dividend yield is 1.54% higher than that of MDY (2.48% vs. 0.94%). Also, LQD yielded on average 6.71% less per year over the past decade (6.58% vs. 13.29%). The expense ratio of LQD is 0.09 percentage points lower than MDY’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.

MDY - Holdings

MDY Holdings Weight
Bio-Techne Corp 0.75%
Molina Healthcare Inc 0.63%
Cognex Corp 0.63%
Fair Isaac Corp 0.62%
XPO Logistics Inc 0.61%
SolarEdge Technologies Inc 0.61%
Signature Bank 0.6%
Graco Inc 0.55%
Camden Property Trust 0.55%
FactSet Research Systems Inc 0.54%

MDY’s Top Holdings are Bio-Techne Corp, Molina Healthcare Inc, Cognex Corp, Fair Isaac Corp, and XPO Logistics Inc at 0.75%, 0.63%, 0.63%, 0.62%, and 0.61%.

SolarEdge Technologies Inc (0.61%), Signature Bank (0.6%), and Graco Inc (0.55%) have a slightly smaller but still significant weight. Camden Property Trust and FactSet Research Systems Inc are also represented in the MDY’s holdings at 0.55% and 0.54%.

Risk Analysis

LQD MDY
Mean Return 0.47 1.08
R-squared 66.93 86.66
Std. Deviation 5.94 16.83
Alpha 0.52 -4.1
Beta 1.62 1.15
Sharpe Ratio 0.85 0.73
Treynor Ratio 3.08 9.97

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

The SPDR S&P MIDCAP 400 ETF Trust (MDY) has a Sharpe Ratio of 0.73 with a Treynor Ratio of 9.97 and a R-squared of 86.66. Its Alpha is -4.1 while MDY’s Standard Deviation is 16.83. Furthermore, the fund has a Beta of 1.15 and a Mean Return of 1.08.

LQD’s Mean Return is 0.61 points lower than that of MDY and its R-squared is 19.73 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than MDY. The Alpha and Beta of LQD are 4.62 points higher and 0.47 points higher than MDY’s Alpha and Beta.

Performance

Annual Returns

LQD vs. MDY - Annual Returns

Year LQD MDY
2020 11.14% 13.51%
2019 17.13% 25.86%
2018 -3.76% -11.28%
2017 7.16% 15.89%
2016 5.97% 20.33%
2015 -1.08% -2.4%
2014 8.57% 9.42%
2013 -2.49% 33.08%
2012 11.68% 17.58%
2011 8.89% -1.99%
2010 9.15% 26.17%

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 MDY, returning 33.08% on an annual basis. The poorest year for MDY in the last ten years was 2018, with a yield of -11.28%. Most years the SPDR S&P MIDCAP 400 ETF Trust has given investors modest returns, such as in 2020, 2017, and 2012, when gains were 13.51%, 15.89%, and 17.58% respectively.

Portfolio Growth

LQD vs. MDY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
MDY $10,000 $36,524 13.29%

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 MDY, the end total would have been $36,524. This equates to a $26,524 profit over 11 years and a compound annual growth rate (CAGR) of 13.29%.

LQD’s CAGR is 6.71 percentage points lower than that of MDY and as a result, would have yielded $16,748 less on a $10,000 investment. Thus, LQD performed worse than MDY by 6.71% annually.


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