LQD vs. SCHA: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the Schwab U.S. Small-Cap ETF (SCHA) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and SCHA is a Schwab ETFs Small Blend fund. So, what’s the difference between LQD and SCHA? And which fund is better?

The expense ratio of LQD is 0.10 percentage points higher than SCHA’s (0.14% vs. 0.04%). LQD is mostly comprised of BBB bonds while SCHA has a high exposure to the healthcare sector. Overall, LQD has provided lower returns than SCHA over the past ten years.

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

Summary

LQD SCHA
Name iShares iBoxx $ Investment Grade Corporate Bond ETF Schwab U.S. Small-Cap ETF
Category Corporate Bond Small Blend
Issuer iShares Schwab ETFs
AUM 40.23B 16.51B
Avg. Return 6.58% 12.62%
Div. Yield 2.48% 0.98%
Expense Ratio 0.14% 0.04%

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 Schwab U.S. Small-Cap ETF (SCHA) is a Small Blend fund that is issued by Schwab ETFs. It currently has 16.51B total assets under management and has yielded an average annual return of 12.62% over the past 10 years. The fund has a dividend yield of 0.98% with an expense ratio of 0.04%.

LQD’s dividend yield is 1.50% higher than that of SCHA (2.48% vs. 0.98%). Also, LQD yielded on average 6.04% less per year over the past decade (6.58% vs. 12.62%). The expense ratio of LQD is 0.10 percentage points higher than SCHA’s (0.14% vs. 0.04%).

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.

SCHA - Holdings

SCHA Holdings Weight
AMC Entertainment Holdings Inc Class A 0.67%
Caesars Entertainment Inc 0.51%
Cloudflare Inc 0.48%
NovoCure Ltd 0.45%
Plug Power Inc 0.41%
10x Genomics Inc Ordinary Shares – Class A 0.34%
GameStop Corp Class A 0.28%
RH 0.27%
Penn National Gaming Inc 0.27%
Axon Enterprise Inc 0.27%

SCHA’s Top Holdings are AMC Entertainment Holdings Inc Class A, Caesars Entertainment Inc, Cloudflare Inc, NovoCure Ltd, and Plug Power Inc at 0.67%, 0.51%, 0.48%, 0.45%, and 0.41%.

10x Genomics Inc Ordinary Shares – Class A (0.34%), GameStop Corp Class A (0.28%), and RH (0.27%) have a slightly smaller but still significant weight. Penn National Gaming Inc and Axon Enterprise Inc are also represented in the SCHA’s holdings at 0.27% and 0.27%.

Risk Analysis

LQD SCHA
Mean Return 0.47 1.14
R-squared 66.93 82.26
Std. Deviation 5.94 18.68
Alpha 0.52 -4.65
Beta 1.62 1.25
Sharpe Ratio 0.85 0.7
Treynor Ratio 3.08 9.62

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

The Schwab U.S. Small-Cap ETF (SCHA) has a Standard Deviation of 18.68 with a Sharpe Ratio of 0.7 and a R-squared of 82.26. Its Beta is 1.25 while SCHA’s Mean Return is 1.14. Furthermore, the fund has a Alpha of -4.65 and a Treynor Ratio of 9.62.

LQD’s Mean Return is 0.67 points lower than that of SCHA and its R-squared is 15.33 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than SCHA. The Alpha and Beta of LQD are 5.17 points higher and 0.37 points higher than SCHA’s Alpha and Beta.

Performance

Annual Returns

LQD vs. SCHA - Annual Returns

Year LQD SCHA
2020 11.14% 19.35%
2019 17.13% 26.54%
2018 -3.76% -11.75%
2017 7.16% 15.04%
2016 5.97% 19.88%
2015 -1.08% -4.24%
2014 8.57% 6.53%
2013 -2.49% 39.59%
2012 11.68% 18.24%
2011 8.89% -2.95%
2010 9.15% 28.31%

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 SCHA, returning 39.59% on an annual basis. The poorest year for SCHA in the last ten years was 2018, with a yield of -11.75%. Most years the Schwab U.S. Small-Cap ETF has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 15.04%, 18.24%, and 19.35% respectively.

Portfolio Growth

LQD vs. SCHA - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $18,118 6.58%
SCHA $10,000 $30,035 12.62%

A $10,000 investment in LQD would have resulted in a final balance of $18,118. This is a profit of $8,118 over 10 years and amounts to a compound annual growth rate (CAGR) of 6.58%.

With a $10,000 investment in SCHA, the end total would have been $30,035. This equates to a $20,035 profit over 10 years and a compound annual growth rate (CAGR) of 12.62%.

LQD’s CAGR is 6.04 percentage points lower than that of SCHA and as a result, would have yielded $11,917 less on a $10,000 investment. Thus, LQD performed worse than SCHA by 6.04% annually.


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