LQD vs. SHY: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and SHY is a iShares Short Government fund. So, what’s the difference between LQD and SHY? And which fund is better?

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

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

Summary

LQD SHY
Name iShares iBoxx $ Investment Grade Corporate Bond ETF iShares 1-3 Year Treasury Bond ETF
Category Corporate Bond Short Government
Issuer iShares iShares
AUM 40.23B 19.51B
Avg. Return 6.58% 1.27%
Div. Yield 2.48% 0.46%
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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

LQD’s dividend yield is 2.02% higher than that of SHY (2.48% vs. 0.46%). Also, LQD yielded on average 5.30% more per year over the past decade (6.58% vs. 1.27%). The expense ratio of LQD is 0.01 percentage points lower than SHY’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.

SHY - Holdings

SHY Bond Sectors Weight
AAA 99.67%
Others 0.33%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

Risk Analysis

LQD SHY
Mean Return 0.47 0.09
R-squared 66.93 39.11
Std. Deviation 5.94 0.89
Alpha 0.52 -0.03
Beta 1.62 0.18
Sharpe Ratio 0.85 0.54
Treynor Ratio 3.08 2.6

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

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Treynor Ratio of 2.6 with a R-squared of 39.11 and a Standard Deviation of 0.89. Its Beta is 0.18 while SHY’s Alpha is -0.03. Furthermore, the fund has a Sharpe Ratio of 0.54 and a Mean Return of 0.09.

LQD’s Mean Return is 0.38 points higher than that of SHY and its R-squared is 27.82 points higher. With a Standard Deviation of 5.94, LQD is slightly more volatile than SHY. The Alpha and Beta of LQD are 0.55 points higher and 1.44 points higher than SHY’s Alpha and Beta.

Performance

Annual Returns

LQD vs. SHY - Annual Returns

Year LQD SHY
2020 11.14% 3.01%
2019 17.13% 3.42%
2018 -3.76% 1.45%
2017 7.16% 0.27%
2016 5.97% 0.75%
2015 -1.08% 0.43%
2014 8.57% 0.48%
2013 -2.49% 0.23%
2012 11.68% 0.31%
2011 8.89% 1.43%
2010 9.15% 2.23%

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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.

Portfolio Growth

LQD vs. SHY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
SHY $10,000 $11,486 1.27%

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 SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.

LQD’s CAGR is 5.30 percentage points higher than that of SHY and as a result, would have yielded $8,290 more on a $10,000 investment. Thus, LQD outperformed SHY by 5.30% annually.


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