LQD vs. TLT: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and TLT is a iShares Long Government fund. So, what’s the difference between LQD and TLT? And which fund is better?

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

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

Summary

LQD TLT
Name iShares iBoxx $ Investment Grade Corporate Bond ETF iShares 20+ Year Treasury Bond ETF
Category Corporate Bond Long Government
Issuer iShares iShares
AUM 40.23B 15.15B
Avg. Return 6.58% 9.00%
Div. Yield 2.48% 1.5%
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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.

LQD’s dividend yield is 0.98% higher than that of TLT (2.48% vs. 1.5%). Also, LQD yielded on average 2.42% less per year over the past decade (6.58% vs. 9.00%). The expense ratio of LQD is 0.01 percentage points lower than TLT’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.

TLT - Holdings

TLT Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

TLT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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 TLT
Mean Return 0.47 0.63
R-squared 66.93 68.76
Std. Deviation 5.94 12.76
Alpha 0.52 -2.83
Beta 1.62 3.54
Sharpe Ratio 0.85 0.55
Treynor Ratio 3.08 1.82

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

The iShares 20+ Year Treasury Bond ETF (TLT) has a R-squared of 68.76 with a Sharpe Ratio of 0.55 and a Beta of 3.54. Its Treynor Ratio is 1.82 while TLT’s Mean Return is 0.63. Furthermore, the fund has a Standard Deviation of 12.76 and a Alpha of -2.83.

LQD’s Mean Return is 0.16 points lower than that of TLT and its R-squared is 1.83 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than TLT. The Alpha and Beta of LQD are 3.35 points higher and 1.92 points lower than TLT’s Alpha and Beta.

Performance

Annual Returns

LQD vs. TLT - Annual Returns

Year LQD TLT
2020 11.14% 17.92%
2019 17.13% 14.93%
2018 -3.76% -2.07%
2017 7.16% 8.92%
2016 5.97% 1.36%
2015 -1.08% -1.65%
2014 8.57% 27.35%
2013 -2.49% -13.91%
2012 11.68% 3.25%
2011 8.89% 33.6%
2010 9.15% 9.25%

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 2011 was the strongest year for TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.

Portfolio Growth

LQD vs. TLT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
TLT $10,000 $23,809 9.00%

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 TLT, the end total would have been $23,809. This equates to a $13,809 profit over 11 years and a compound annual growth rate (CAGR) of 9.00%.

LQD’s CAGR is 2.42 percentage points lower than that of TLT and as a result, would have yielded $4,033 less on a $10,000 investment. Thus, LQD performed worse than TLT by 2.42% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply