LQD vs. PFF: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares Preferred and Income Securities ETF (PFF) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and PFF is a iShares Preferred Stock fund. So, what’s the difference between LQD and PFF? And which fund is better?

The expense ratio of LQD is 0.32 percentage points lower than PFF’s (0.14% vs. 0.46%). LQD is mostly comprised of BBB bonds while PFF has a high exposure to the utilities sector. Overall, LQD has provided lower returns than PFF over the past ten years.

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

Summary

LQD PFF
Name iShares iBoxx $ Investment Grade Corporate Bond ETF iShares Preferred and Income Securities ETF
Category Corporate Bond Preferred Stock
Issuer iShares iShares
AUM 40.23B 19.8B
Avg. Return 6.58% 6.90%
Div. Yield 2.48% 4.47%
Expense Ratio 0.14% 0.46%

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 Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

LQD’s dividend yield is 1.99% lower than that of PFF (2.48% vs. 4.47%). Also, LQD yielded on average 0.32% less per year over the past decade (6.58% vs. 6.90%). The expense ratio of LQD is 0.32 percentage points lower than PFF’s (0.14% vs. 0.46%).

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.

PFF - Holdings

PFF Holdings Weight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A 2.54%
BlackRock Cash Funds Treasury SL Agency 2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L- 1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L- 1.49%
ArcelorMittal S.A. 5.5% 1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A 1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B 1.14%
NextEra Energy Inc Unit 1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 1.08%
Avantor Inc Ser A 0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

Risk Analysis

LQD PFF
Mean Return 0.47 0.52
R-squared 66.93 9.39
Std. Deviation 5.94 7.87
Alpha 0.52 3.45
Beta 1.62 0.81
Sharpe Ratio 0.85 0.72
Treynor Ratio 3.08 6.79

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

The iShares Preferred and Income Securities ETF (PFF) has a Beta of 0.81 with a R-squared of 9.39 and a Alpha of 3.45. Its Sharpe Ratio is 0.72 while PFF’s Mean Return is 0.52. Furthermore, the fund has a Standard Deviation of 7.87 and a Treynor Ratio of 6.79.

LQD’s Mean Return is 0.05 points lower than that of PFF and its R-squared is 57.54 points higher. With a Standard Deviation of 5.94, LQD is slightly less volatile than PFF. The Alpha and Beta of LQD are 2.93 points lower and 0.81 points higher than PFF’s Alpha and Beta.

Performance

Annual Returns

LQD vs. PFF - Annual Returns

Year LQD PFF
2020 11.14% 7.94%
2019 17.13% 15.62%
2018 -3.76% -4.77%
2017 7.16% 8.33%
2016 5.97% 1.26%
2015 -1.08% 4.62%
2014 8.57% 13.45%
2013 -2.49% -0.59%
2012 11.68% 18.25%
2011 8.89% -2.2%
2010 9.15% 13.96%

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 2012 was the strongest year for PFF, returning 18.25% on an annual basis. The poorest year for PFF in the last ten years was 2018, with a yield of -4.77%. Most years the iShares Preferred and Income Securities ETF has given investors modest returns, such as in 2015, 2020, and 2017, when gains were 4.62%, 7.94%, and 8.33% respectively.

Portfolio Growth

LQD vs. PFF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
PFF $10,000 $20,272 6.90%

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 PFF, the end total would have been $20,272. This equates to a $10,272 profit over 11 years and a compound annual growth rate (CAGR) of 6.90%.

LQD’s CAGR is 0.32 percentage points lower than that of PFF and as a result, would have yielded $496 less on a $10,000 investment. Thus, LQD performed worse than PFF by 0.32% annually.


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