The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and VEU is a Vanguard Foreign Large Blend fund. So, what’s the difference between LQD and VEU? And which fund is better?
The expense ratio of LQD is 0.06 percentage points higher than VEU’s (0.14% vs. 0.08%). LQD is mostly comprised of BBB bonds while VEU has a high exposure to the financial services sector. Overall, LQD has provided lower returns than VEU over the past ten years.
In this article, we’ll compare LQD vs. VEU. We’ll look at industry exposure and annual returns, as well as at their portfolio growth and risk metrics. Moreover, I’ll also discuss LQD’s and VEU’s holdings, fund composition, and performance and examine how these affect their overall returns.
|Name||iShares iBoxx $ Investment Grade Corporate Bond ETF||Vanguard FTSE All-World ex-US Index Fund ETF Shares|
|Category||Corporate Bond||Foreign Large Blend|
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 Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 53.64B total assets under management and has yielded an average annual return of 6.64% over the past 10 years. The fund has a dividend yield of 2.31% with an expense ratio of 0.08%.
LQD’s dividend yield is 0.17% higher than that of VEU (2.48% vs. 2.31%). Also, LQD yielded on average 0.06% less per year over the past decade (6.58% vs. 6.64%). The expense ratio of LQD is 0.06 percentage points higher than VEU’s (0.14% vs. 0.08%).
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|LQD Bond Sectors||Weight|
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.
|Tencent Holdings Ltd||1.57%|
|Alibaba Group Holding Ltd Ordinary Shares||1.4%|
|Taiwan Semiconductor Manufacturing Co Ltd||0.98%|
|ASML Holding NV||0.95%|
|Taiwan Semiconductor Manufacturing Co Ltd ADR||0.91%|
|Roche Holding AG||0.91%|
|Toyota Motor Corp||0.75%|
|LVMH Moet Hennessy Louis Vuitton SE||0.68%|
VEU’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Nestle SA, Taiwan Semiconductor Manufacturing Co Ltd, and ASML Holding NV at 1.57%, 1.4%, 1.22%, 0.98%, and 0.95%.
Taiwan Semiconductor Manufacturing Co Ltd ADR (0.91%), Roche Holding AG (0.91%), and Toyota Motor Corp (0.75%) have a slightly smaller but still significant weight. LVMH Moet Hennessy Louis Vuitton SE and Novartis AG are also represented in the VEU’s holdings at 0.68% and 0.67%.
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The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Beta of 1.62 with a Alpha of 0.52 and a R-squared of 66.93. Its Standard Deviation is 5.94 while LQD’s Sharpe Ratio is 0.85. Furthermore, the fund has a Mean Return of 0.47 and a Treynor Ratio of 3.08.
The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has a Beta of 0.99 with a R-squared of 98.44 and a Alpha of 0.28. Its Treynor Ratio is 5.12 while VEU’s Mean Return is 0.56. Furthermore, the fund has a Sharpe Ratio of 0.4 and a Standard Deviation of 15.08.
LQD’s Mean Return is 0.09 points lower than that of VEU and its R-squared is 31.51 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than VEU. The Alpha and Beta of LQD are 0.24 points higher and 0.63 points higher than VEU’s Alpha and Beta.
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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 2017 was the strongest year for VEU, returning 27.27% on an annual basis. The poorest year for VEU in the last ten years was 2011, with a yield of -14.25%. Most years the Vanguard FTSE All-World ex-US Index Fund ETF Shares has given investors modest returns, such as in 2016, 2020, and 2010, when gains were 4.77%, 11.39%, and 11.85% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
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 VEU, the end total would have been $18,507. This equates to a $8,507 profit over 11 years and a compound annual growth rate (CAGR) of 6.64%.
LQD’s CAGR is 0.06 percentage points lower than that of VEU and as a result, would have yielded $1,269 more on a $10,000 investment. Thus, LQD performed worse than VEU by 0.06% annually.
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