LQD vs. SCHG: What’s The Difference?

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

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

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

Summary

LQD SCHG
Name iShares iBoxx $ Investment Grade Corporate Bond ETF Schwab U.S. Large-Cap Growth ETF
Category Corporate Bond Large Growth
Issuer iShares Schwab ETFs
AUM 40.23B 15.16B
Avg. Return 6.58% 17.81%
Div. Yield 2.48% 0.43%
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. Large-Cap Growth ETF (SCHG) is a Large Growth fund that is issued by Schwab ETFs. It currently has 15.16B total assets under management and has yielded an average annual return of 17.81% over the past 10 years. The fund has a dividend yield of 0.43% with an expense ratio of 0.04%.

LQD’s dividend yield is 2.05% higher than that of SCHG (2.48% vs. 0.43%). Also, LQD yielded on average 11.23% less per year over the past decade (6.58% vs. 17.81%). The expense ratio of LQD is 0.10 percentage points higher than SCHG’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.

SCHG - Holdings

SCHG Holdings Weight
Apple Inc 11.49%
Microsoft Corp 10.91%
Amazon.com Inc 7.89%
Facebook Inc A 4.45%
Alphabet Inc A 3.93%
Alphabet Inc Class C 3.82%
Tesla Inc 2.8%
NVIDIA Corp 2.67%
Visa Inc Class A 2.12%
UnitedHealth Group Inc 2.02%

SCHG’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, and Alphabet Inc A at 11.49%, 10.91%, 7.89%, 4.45%, and 3.93%.

Alphabet Inc Class C (3.82%), Tesla Inc (2.8%), and NVIDIA Corp (2.67%) have a slightly smaller but still significant weight. Visa Inc Class A and UnitedHealth Group Inc are also represented in the SCHG’s holdings at 2.12% and 2.02%.

Risk Analysis

LQD SCHG
Mean Return 0.47 1.46
R-squared 66.93 92.92
Std. Deviation 5.94 14.78
Alpha 0.52 1.97
Beta 1.62 1.05
Sharpe Ratio 0.85 1.14
Treynor Ratio 3.08 16.3

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

The Schwab U.S. Large-Cap Growth ETF (SCHG) has a Mean Return of 1.46 with a R-squared of 92.92 and a Sharpe Ratio of 1.14. Its Standard Deviation is 14.78 while SCHG’s Alpha is 1.97. Furthermore, the fund has a Beta of 1.05 and a Treynor Ratio of 16.3.

LQD’s Mean Return is 0.99 points lower than that of SCHG and its R-squared is 25.99 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than SCHG. The Alpha and Beta of LQD are 1.45 points lower and 0.57 points higher than SCHG’s Alpha and Beta.

Performance

Annual Returns

LQD vs. SCHG - Annual Returns

Year LQD SCHG
2020 11.14% 39.13%
2019 17.13% 36.21%
2018 -3.76% -1.35%
2017 7.16% 28.04%
2016 5.97% 6.76%
2015 -1.08% 3.26%
2014 8.57% 15.74%
2013 -2.49% 33.96%
2012 11.68% 17.02%
2011 8.89% -0.67%
2010 9.15% 16.83%

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 2020 was the strongest year for SCHG, returning 39.13% on an annual basis. The poorest year for SCHG in the last ten years was 2018, with a yield of -1.35%. Most years the Schwab U.S. Large-Cap Growth ETF has given investors modest returns, such as in 2014, 2010, and 2012, when gains were 15.74%, 16.83%, and 17.02% respectively.

Portfolio Growth

LQD vs. SCHG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $18,118 6.58%
SCHG $10,000 $47,556 17.81%

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 SCHG, the end total would have been $47,556. This equates to a $37,556 profit over 10 years and a compound annual growth rate (CAGR) of 17.81%.

LQD’s CAGR is 11.23 percentage points lower than that of SCHG and as a result, would have yielded $29,438 less on a $10,000 investment. Thus, LQD performed worse than SCHG by 11.23% annually.


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