LQD vs. QUAL: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and QUAL is a iShares Large Blend fund. So, what’s the difference between LQD and QUAL? And which fund is better?

The expense ratio of LQD is 0.01 percentage points lower than QUAL’s (0.14% vs. 0.15%). LQD is mostly comprised of BBB bonds while QUAL has a high exposure to the technology sector. Overall, LQD has provided lower returns than QUAL over the past ten years.

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

Summary

LQD QUAL
Name iShares iBoxx $ Investment Grade Corporate Bond ETF iShares MSCI USA Quality Factor ETF
Category Corporate Bond Large Blend
Issuer iShares iShares
AUM 40.23B 23.93B
Avg. Return 6.58% 13.42%
Div. Yield 2.48% 1.29%
Expense Ratio 0.14% 0.15%

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 MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

LQD’s dividend yield is 1.19% higher than that of QUAL (2.48% vs. 1.29%). Also, LQD yielded on average 6.84% less per year over the past decade (6.58% vs. 13.42%). The expense ratio of LQD is 0.01 percentage points lower than QUAL’s (0.14% vs. 0.15%).

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.

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

Risk Analysis

LQD QUAL
Mean Return 0.47 0
R-squared 66.93 0
Std. Deviation 5.94 0
Alpha 0.52 0
Beta 1.62 0
Sharpe Ratio 0.85 0
Treynor Ratio 3.08 0

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

The iShares MSCI USA Quality Factor ETF (QUAL) has a Treynor Ratio of 0 with a Alpha of 0 and a R-squared of 0. Its Mean Return is 0 while QUAL’s Beta is 0. Furthermore, the fund has a Sharpe Ratio of 0 and a Standard Deviation of 0.

LQD’s Mean Return is 0.47 points higher than that of QUAL and its R-squared is 66.93 points higher. With a Standard Deviation of 5.94, LQD is slightly more volatile than QUAL. The Alpha and Beta of LQD are 0.52 points higher and 1.62 points higher than QUAL’s Alpha and Beta.

Performance

Annual Returns

LQD vs. QUAL - Annual Returns

Year LQD QUAL
2020 11.14% 16.96%
2019 17.13% 34.14%
2018 -3.76% -5.77%
2017 7.16% 22.26%
2016 5.97% 9.18%
2015 -1.08% 5.56%
2014 8.57% 11.62%
2013 -2.49% 0.0%
2012 11.68% 0.0%
2011 8.89% 0.0%
2010 9.15% 0.0%

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 QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

LQD vs. QUAL - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $15,279 6.58%
QUAL $10,000 $23,251 13.42%

A $10,000 investment in LQD would have resulted in a final balance of $15,279. This is a profit of $5,279 over 7 years and amounts to a compound annual growth rate (CAGR) of 6.58%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

LQD’s CAGR is 6.84 percentage points lower than that of QUAL and as a result, would have yielded $7,972 less on a $10,000 investment. Thus, LQD performed worse than QUAL by 6.84% annually.


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