LQD vs. VT: What’s The Difference?

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

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

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

Summary

LQD VT
Name iShares iBoxx $ Investment Grade Corporate Bond ETF Vanguard Total World Stock Index Fund ETF Shares
Category Corporate Bond N/A
Issuer iShares Vanguard
AUM 40.23B 30.44B
Avg. Return 6.58% 10.42%
Div. Yield 2.48% 1.65%
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 Total World Stock Index Fund ETF Shares (VT) is a N/A fund that is issued by Vanguard. It currently has 30.44B total assets under management and has yielded an average annual return of 10.42% over the past 10 years. The fund has a dividend yield of 1.65% with an expense ratio of 0.08%.

LQD’s dividend yield is 0.83% higher than that of VT (2.48% vs. 1.65%). Also, LQD yielded on average 3.84% less per year over the past decade (6.58% vs. 10.42%). The expense ratio of LQD is 0.06 percentage points higher than VT’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.

VT - Holdings

VT Holdings Weight
Apple Inc 2.85%
Microsoft Corp 2.71%
Amazon.com Inc 1.98%
Facebook Inc Class A 1.1%
Alphabet Inc Class A 0.97%
Alphabet Inc Class C 0.95%
Tesla Inc 0.7%
NVIDIA Corp 0.64%
JPMorgan Chase & Co 0.62%
Tencent Holdings Ltd 0.6%

VT’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, and Alphabet Inc Class A at 2.85%, 2.71%, 1.98%, 1.1%, and 0.97%.

Alphabet Inc Class C (0.95%), Tesla Inc (0.7%), and NVIDIA Corp (0.64%) have a slightly smaller but still significant weight. JPMorgan Chase & Co and Tencent Holdings Ltd are also represented in the VT’s holdings at 0.62% and 0.6%.

Risk Analysis

LQD VT
Mean Return 0.47 0.9
R-squared 66.93 99.35
Std. Deviation 5.94 14.19
Alpha 0.52 0.2
Beta 1.62 1.01
Sharpe Ratio 0.85 0.71
Treynor Ratio 3.08 9.5

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

The Vanguard Total World Stock Index Fund ETF Shares (VT) has a Alpha of 0.2 with a Mean Return of 0.9 and a Standard Deviation of 14.19. Its Beta is 1.01 while VT’s R-squared is 99.35. Furthermore, the fund has a Sharpe Ratio of 0.71 and a Treynor Ratio of 9.5.

LQD’s Mean Return is 0.43 points lower than that of VT and its R-squared is 32.42 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than VT. The Alpha and Beta of LQD are 0.32 points higher and 0.61 points higher than VT’s Alpha and Beta.

Performance

Annual Returns

LQD vs. VT - Annual Returns

Year LQD VT
2020 11.14% 16.74%
2019 17.13% 26.8%
2018 -3.76% -9.67%
2017 7.16% 24.19%
2016 5.97% 8.77%
2015 -1.08% -1.88%
2014 8.57% 3.97%
2013 -2.49% 22.98%
2012 11.68% 17.33%
2011 8.89% -7.71%
2010 9.15% 13.05%

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 VT, returning 26.8% on an annual basis. The poorest year for VT in the last ten years was 2018, with a yield of -9.67%. Most years the Vanguard Total World Stock Index Fund ETF Shares has given investors modest returns, such as in 2016, 2010, and 2020, when gains were 8.77%, 13.05%, and 16.74% respectively.

Portfolio Growth

LQD vs. VT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
VT $10,000 $27,739 10.42%

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 VT, the end total would have been $27,739. This equates to a $17,739 profit over 11 years and a compound annual growth rate (CAGR) of 10.42%.

LQD’s CAGR is 3.84 percentage points lower than that of VT and as a result, would have yielded $7,963 less on a $10,000 investment. Thus, LQD performed worse than VT by 3.84% annually.


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