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LQD vs. USMV: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares MSCI USA Min Vol Factor ETF (USMV) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and USMV is a iShares Large Blend fund. So, what’s the difference between LQD and USMV? And which fund is better?

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

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

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Summary

LQDUSMV
NameiShares iBoxx $ Investment Grade Corporate Bond ETFiShares MSCI USA Min Vol Factor ETF
CategoryCorporate BondLarge Blend
IssueriSharesiShares
AUM40.23B27.6B
Avg. Return6.58%13.89%
Div. Yield2.48%1.5%
Expense Ratio0.14%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 MSCI USA Min Vol Factor ETF (USMV) is a Large Blend fund that is issued by iShares. It currently has 27.6B total assets under management and has yielded an average annual return of 13.89% 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 USMV (2.48% vs. 1.5%). Also, LQD yielded on average 7.32% less per year over the past decade (6.58% vs. 13.89%). The expense ratio of LQD is 0.01 percentage points lower than USMV’s (0.14% vs. 0.15%).

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Fund Composition

Holdings

LQD - Holdings

LQD Bond SectorsWeight
BBB50.92%
A37.97%
AA8.49%
AAA2.7%
BB0.05%
Below B0.0%
B0.0%
US Government0.0%
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.

USMV - Holdings

USMV HoldingsWeight
Eli Lilly and Co1.64%
Microsoft Corp1.62%
T-Mobile US Inc1.51%
Accenture PLC Class A1.51%
Visa Inc Class A1.49%
Waste Management Inc1.45%
Adobe Inc1.45%
The Kroger Co1.44%
Johnson & Johnson1.42%
Gilead Sciences Inc1.42%

USMV’s Top Holdings are Eli Lilly and Co, Microsoft Corp, T-Mobile US Inc, Accenture PLC Class A, and Visa Inc Class A at 1.64%, 1.62%, 1.51%, 1.51%, and 1.49%.

Waste Management Inc (1.45%), Adobe Inc (1.45%), and The Kroger Co (1.44%) have a slightly smaller but still significant weight. Johnson & Johnson and Gilead Sciences Inc are also represented in the USMV’s holdings at 1.42% and 1.42%.

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Risk Analysis

LQDUSMV
Mean Return0.470
R-squared66.930
Std. Deviation5.940
Alpha0.520
Beta1.620
Sharpe Ratio0.850
Treynor Ratio3.080

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

The iShares MSCI USA Min Vol Factor ETF (USMV) has a Standard Deviation of 0 with a Sharpe Ratio of 0 and a Treynor Ratio of 0. Its Beta is 0 while USMV’s Mean Return is 0. Furthermore, the fund has a R-squared of 0 and a Alpha of 0.

LQD’s Mean Return is 0.47 points higher than that of USMV and its R-squared is 66.93 points higher. With a Standard Deviation of 5.94, LQD is slightly more volatile than USMV. The Alpha and Beta of LQD are 0.52 points higher and 1.62 points higher than USMV’s Alpha and Beta.

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Performance

Annual Returns

LQD vs. USMV - Annual Returns

YearLQDUSMV
202011.14%5.6%
201917.13%27.77%
2018-3.76%1.36%
20177.16%18.97%
20165.97%10.5%
2015-1.08%5.5%
20148.57%16.34%
2013-2.49%25.11%
201211.68%11.04%
20118.89%0.0%
20109.15%0.0%

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 USMV, returning 27.77% on an annual basis. The poorest year for USMV in the last ten years was 2011, with a yield of 0.0%. Most years the iShares MSCI USA Min Vol Factor ETF has given investors modest returns, such as in 2020, 2016, and 2012, when gains were 5.6%, 10.5%, and 11.04% respectively.

Portfolio Growth

LQD vs. USMV - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
LQD$10,000$14,8986.58%
USMV$10,000$27,60713.89%

A $10,000 investment in LQD would have resulted in a final balance of $14,898. This is a profit of $4,898 over 8 years and amounts to a compound annual growth rate (CAGR) of 6.58%.

With a $10,000 investment in USMV, the end total would have been $27,607. This equates to a $17,607 profit over 8 years and a compound annual growth rate (CAGR) of 13.89%.

LQD’s CAGR is 7.32 percentage points lower than that of USMV and as a result, would have yielded $12,709 less on a $10,000 investment. Thus, LQD performed worse than USMV by 7.32% annually.


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