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LQD vs. VHT: What’s The Difference?

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

The expense ratio of LQD is 0.04 percentage points higher than VHT’s (0.14% vs. 0.1%). LQD is mostly comprised of BBB bonds while VHT has a high exposure to the healthcare sector. Overall, LQD has provided lower returns than VHT over the past ten years.

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

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Summary

LQDVHT
NameiShares iBoxx $ Investment Grade Corporate Bond ETFVanguard Health Care Index Fund ETF Shares
CategoryCorporate BondHealth
IssueriSharesVanguard
AUM40.23B17.94B
Avg. Return6.58%16.04%
Div. Yield2.48%1.15%
Expense Ratio0.14%0.1%

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 Health Care Index Fund ETF Shares (VHT) is a Health fund that is issued by Vanguard. It currently has 17.94B total assets under management and has yielded an average annual return of 16.04% over the past 10 years. The fund has a dividend yield of 1.15% with an expense ratio of 0.1%.

LQD’s dividend yield is 1.33% higher than that of VHT (2.48% vs. 1.15%). Also, LQD yielded on average 9.46% less per year over the past decade (6.58% vs. 16.04%). The expense ratio of LQD is 0.04 percentage points higher than VHT’s (0.14% vs. 0.1%).

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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.

VHT - Holdings

VHT HoldingsWeight
Johnson & Johnson7.34%
UnitedHealth Group Inc6.44%
Pfizer Inc3.7%
Abbott Laboratories3.48%
Thermo Fisher Scientific Inc3.37%
AbbVie Inc3.37%
Merck & Co Inc3.33%
Eli Lilly and Co3.17%
Danaher Corp2.91%
Medtronic PLC2.83%

VHT’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and Thermo Fisher Scientific Inc at 7.34%, 6.44%, 3.7%, 3.48%, and 3.37%.

AbbVie Inc (3.37%), Merck & Co Inc (3.33%), and Eli Lilly and Co (3.17%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the VHT’s holdings at 2.91% and 2.83%.

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Risk Analysis

LQDVHT
Mean Return0.471.33
R-squared66.9359.86
Std. Deviation5.9413.58
Alpha0.527.99
Beta1.620.75
Sharpe Ratio0.851.13
Treynor Ratio3.0820.74

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

The Vanguard Health Care Index Fund ETF Shares (VHT) has a Beta of 0.75 with a Standard Deviation of 13.58 and a Mean Return of 1.33. Its Treynor Ratio is 20.74 while VHT’s Sharpe Ratio is 1.13. Furthermore, the fund has a R-squared of 59.86 and a Alpha of 7.99.

LQD’s Mean Return is 0.86 points lower than that of VHT and its R-squared is 7.07 points higher. With a Standard Deviation of 5.94, LQD is slightly less volatile than VHT. The Alpha and Beta of LQD are 7.47 points lower and 0.87 points higher than VHT’s Alpha and Beta.

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Performance

Annual Returns

LQD vs. VHT - Annual Returns

YearLQDVHT
202011.14%18.21%
201917.13%21.97%
2018-3.76%5.55%
20177.16%23.34%
20165.97%-3.33%
2015-1.08%7.22%
20148.57%25.38%
2013-2.49%42.67%
201211.68%19.1%
20118.89%10.57%
20109.15%5.75%

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 2013 was the strongest year for VHT, returning 42.67% on an annual basis. The poorest year for VHT in the last ten years was 2016, with a yield of -3.33%. Most years the Vanguard Health Care Index Fund ETF Shares has given investors modest returns, such as in 2011, 2020, and 2012, when gains were 10.57%, 18.21%, and 19.1% respectively.

Portfolio Growth

LQD vs. VHT - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
LQD$10,000$19,7766.58%
VHT$10,000$48,46416.04%

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 VHT, the end total would have been $48,464. This equates to a $38,464 profit over 11 years and a compound annual growth rate (CAGR) of 16.04%.

LQD’s CAGR is 9.46 percentage points lower than that of VHT and as a result, would have yielded $28,688 less on a $10,000 investment. Thus, LQD performed worse than VHT by 9.46% annually.


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