LQD vs. SCHX: What’s The Difference?

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

The expense ratio of LQD is 0.11 percentage points higher than SCHX’s (0.14% vs. 0.03%). LQD is mostly comprised of BBB bonds while SCHX has a high exposure to the technology sector. Overall, LQD has provided lower returns than SCHX over the past ten years.

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

Summary

LQD SCHX
Name iShares iBoxx $ Investment Grade Corporate Bond ETF Schwab U.S. Large-Cap ETF
Category Corporate Bond Large Blend
Issuer iShares Schwab ETFs
AUM 40.23B 30.89B
Avg. Return 6.58% 14.60%
Div. Yield 2.48% 1.41%
Expense Ratio 0.14% 0.03%

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 ETF (SCHX) is a Large Blend fund that is issued by Schwab ETFs. It currently has 30.89B total assets under management and has yielded an average annual return of 14.60% over the past 10 years. The fund has a dividend yield of 1.41% with an expense ratio of 0.03%.

LQD’s dividend yield is 1.07% higher than that of SCHX (2.48% vs. 1.41%). Also, LQD yielded on average 8.02% less per year over the past decade (6.58% vs. 14.60%). The expense ratio of LQD is 0.11 percentage points higher than SCHX’s (0.14% vs. 0.03%).

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.

SCHX - Holdings

SCHX Holdings Weight
Apple Inc 5.37%
Microsoft Corp 5.1%
Amazon.com Inc 3.69%
Facebook Inc A 2.08%
Alphabet Inc A 1.84%
Alphabet Inc Class C 1.78%
Berkshire Hathaway Inc Class B 1.32%
Tesla Inc 1.31%
NVIDIA Corp 1.25%
JPMorgan Chase & Co 1.18%

SCHX’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, and Alphabet Inc A at 5.37%, 5.1%, 3.69%, 2.08%, and 1.84%.

Alphabet Inc Class C (1.78%), Berkshire Hathaway Inc Class B (1.32%), and Tesla Inc (1.31%) have a slightly smaller but still significant weight. NVIDIA Corp and JPMorgan Chase & Co are also represented in the SCHX’s holdings at 1.25% and 1.18%.

Risk Analysis

LQD SCHX
Mean Return 0.47 1.24
R-squared 66.93 99.83
Std. Deviation 5.94 13.8
Alpha 0.52 -0.14
Beta 1.62 1.02
Sharpe Ratio 0.85 1.03
Treynor Ratio 3.08 14.06

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

The Schwab U.S. Large-Cap ETF (SCHX) has a Standard Deviation of 13.8 with a Alpha of -0.14 and a Beta of 1.02. Its Treynor Ratio is 14.06 while SCHX’s R-squared is 99.83. Furthermore, the fund has a Sharpe Ratio of 1.03 and a Mean Return of 1.24.

LQD’s Mean Return is 0.77 points lower than that of SCHX and its R-squared is 32.90 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than SCHX. The Alpha and Beta of LQD are 0.66 points higher and 0.60 points higher than SCHX’s Alpha and Beta.

Performance

Annual Returns

LQD vs. SCHX - Annual Returns

Year LQD SCHX
2020 11.14% 20.9%
2019 17.13% 31.4%
2018 -3.76% -4.52%
2017 7.16% 21.91%
2016 5.97% 11.78%
2015 -1.08% 1.02%
2014 8.57% 13.33%
2013 -2.49% 32.54%
2012 11.68% 16.06%
2011 8.89% 1.61%
2010 9.15% 15.88%

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 SCHX, returning 32.54% on an annual basis. The poorest year for SCHX in the last ten years was 2018, with a yield of -4.52%. Most years the Schwab U.S. Large-Cap ETF has given investors modest returns, such as in 2014, 2010, and 2012, when gains were 13.33%, 15.88%, and 16.06% respectively.

Portfolio Growth

LQD vs. SCHX - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $18,118 6.58%
SCHX $10,000 $36,987 14.60%

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 SCHX, the end total would have been $36,987. This equates to a $26,987 profit over 10 years and a compound annual growth rate (CAGR) of 14.60%.

LQD’s CAGR is 8.02 percentage points lower than that of SCHX and as a result, would have yielded $18,869 less on a $10,000 investment. Thus, LQD performed worse than SCHX by 8.02% annually.


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