The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between LQD and VMBS? And which fund is better?
The expense ratio of LQD is 0.09 percentage points higher than VMBS’s (0.14% vs. 0.05%). LQD is mostly comprised of BBB bonds and VMBS has a high exposure to AAA bond. Overall, LQD has provided higher returns than VMBS over the past ten years.
In this article, we’ll compare LQD vs. VMBS. We’ll look at performance and risk metrics, as well as at their annual returns and portfolio growth. Moreover, I’ll also discuss LQD’s and VMBS’s holdings, industry exposure, and fund composition and examine how these affect their overall returns.
|NameiShares iBoxx $ Investment Grade Corporate Bond ETFVanguard Mortgage-Backed Securities Index Fund ETF Shares|
|Category||Corporate Bond||Intermediate Government|
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 Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.
LQD’s dividend yield is 1.25% higher than that of VMBS (2.48% vs. 1.23%). Also, LQD yielded on average 3.69% more per year over the past decade (6.58% vs. 2.89%). The expense ratio of LQD is 0.09 percentage points higher than VMBS’s (0.14% vs. 0.05%).
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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.
|VMBS Bond Sectors||Weight|
VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
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The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Treynor Ratio of 3.08 with a Beta of 1.62 and a Alpha of 0.52. Its Standard Deviation is 5.94 while LQD’s R-squared is 66.93. Furthermore, the fund has a Sharpe Ratio of 0.85 and a Mean Return of 0.47.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Standard Deviation of 2.02 with a Treynor Ratio of 3.47 and a Beta of 0.54. Its Sharpe Ratio is 0.94 while VMBS’s R-squared is 65.78. Furthermore, the fund has a Mean Return of 0.21 and a Alpha of 0.37.
LQD’s Mean Return is 0.26 points higher than that of VMBS and its R-squared is 1.15 points higher. With a Standard Deviation of 5.94, LQD is slightly more volatile than VMBS. The Alpha and Beta of LQD are 0.15 points higher and 1.08 points higher than VMBS’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 2019 was the strongest year for VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in LQD would have resulted in a final balance of $18,118. This is a profit of $8,118 over 10 years and amounts to a compound annual growth rate (CAGR) of 6.58%.
With a $10,000 investment in VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.
LQD’s CAGR is 3.69 percentage points higher than that of VMBS and as a result, would have yielded $4,853 more on a $10,000 investment. Thus, LQD outperformed VMBS by 3.69% annually.
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