LQD vs. VGK: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the Vanguard FTSE Europe Index Fund ETF Shares (VGK) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and VGK is a Vanguard Europe Stock fund. So, what’s the difference between LQD and VGK? And which fund is better?

The expense ratio of LQD is 0.06 percentage points higher than VGK’s (0.14% vs. 0.08%). LQD is mostly comprised of BBB bonds while VGK has a high exposure to the financial services sector. Overall, LQD has provided lower returns than VGK over the past ten years.

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

Summary

LQD VGK
Name iShares iBoxx $ Investment Grade Corporate Bond ETF Vanguard FTSE Europe Index Fund ETF Shares
Category Corporate Bond Europe Stock
Issuer iShares Vanguard
AUM 40.23B 25.7B
Avg. Return 6.58% 6.68%
Div. Yield 2.48% 2.52%
Expense Ratio 0.14% 0.08%

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 Europe Index Fund ETF Shares (VGK) is a Europe Stock fund that is issued by Vanguard. It currently has 25.7B total assets under management and has yielded an average annual return of 6.68% over the past 10 years. The fund has a dividend yield of 2.52% with an expense ratio of 0.08%.

LQD’s dividend yield is 0.04% lower than that of VGK (2.48% vs. 2.52%). Also, LQD yielded on average 0.10% less per year over the past decade (6.58% vs. 6.68%). The expense ratio of LQD is 0.06 percentage points higher than VGK’s (0.14% vs. 0.08%).

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.

VGK - Holdings

VGK Holdings Weight
Nestle SA 2.82%
ASML Holding NV 2.2%
Roche Holding AG 2.13%
LVMH Moet Hennessy Louis Vuitton SE 1.58%
Novartis AG 1.55%
AstraZeneca PLC 1.27%
SAP SE 1.25%
Unilever PLC 1.23%
Novo Nordisk A/S B 1.09%
Siemens AG 0.96%

VGK’s Top Holdings are Nestle SA, ASML Holding NV, Roche Holding AG, LVMH Moet Hennessy Louis Vuitton SE, and Novartis AG at 2.82%, 2.2%, 2.13%, 1.58%, and 1.55%.

AstraZeneca PLC (1.27%), SAP SE (1.25%), and Unilever PLC (1.23%) have a slightly smaller but still significant weight. Novo Nordisk A/S B and Siemens AG are also represented in the VGK’s holdings at 1.09% and 0.96%.

Risk Analysis

LQD VGK
Mean Return 0.47 0.61
R-squared 66.93 92.76
Std. Deviation 5.94 16.65
Alpha 0.52 0.45
Beta 1.62 1.06
Sharpe Ratio 0.85 0.4
Treynor Ratio 3.08 5.12

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

The Vanguard FTSE Europe Index Fund ETF Shares (VGK) has a Beta of 1.06 with a Mean Return of 0.61 and a Sharpe Ratio of 0.4. Its Standard Deviation is 16.65 while VGK’s R-squared is 92.76. Furthermore, the fund has a Treynor Ratio of 5.12 and a Alpha of 0.45.

LQD’s Mean Return is 0.14 points lower than that of VGK and its R-squared is 25.83 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than VGK. The Alpha and Beta of LQD are 0.07 points higher and 0.56 points higher than VGK’s Alpha and Beta.

Performance

Annual Returns

LQD vs. VGK - Annual Returns

Year LQD VGK
2020 11.14% 6.5%
2019 17.13% 24.26%
2018 -3.76% -14.79%
2017 7.16% 27.06%
2016 5.97% -0.59%
2015 -1.08% -1.87%
2014 8.57% -6.56%
2013 -2.49% 24.93%
2012 11.68% 21.01%
2011 8.89% -11.49%
2010 9.15% 5.01%

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 VGK, returning 27.06% on an annual basis. The poorest year for VGK in the last ten years was 2018, with a yield of -14.79%. Most years the Vanguard FTSE Europe Index Fund ETF Shares has given investors modest returns, such as in 2016, 2010, and 2020, when gains were -0.59%, 5.01%, and 6.5% respectively.

Portfolio Growth

LQD vs. VGK - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
VGK $10,000 $18,350 6.68%

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 VGK, the end total would have been $18,350. This equates to a $8,350 profit over 11 years and a compound annual growth rate (CAGR) of 6.68%.

LQD’s CAGR is 0.10 percentage points lower than that of VGK and as a result, would have yielded $1,426 more on a $10,000 investment. Thus, LQD performed worse than VGK by 0.10% annually.


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