LQD vs. XLC: What’s The Difference?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the Communication Services Select Sector SPDR Fund (XLC) are both among the Top 100 ETFs. LQD is a iShares Corporate Bond fund and XLC is a SPDR State Street Global Advisors Communications fund. So, what’s the difference between LQD and XLC? And which fund is better?

The expense ratio of LQD is 0.02 percentage points higher than XLC’s (0.14% vs. 0.12%). LQD is mostly comprised of BBB bonds while XLC has a high exposure to the communication services sector. Overall, LQD has provided lower returns than XLC over the past ten years.

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

Summary

LQD XLC
Name iShares iBoxx $ Investment Grade Corporate Bond ETF Communication Services Select Sector SPDR Fund
Category Corporate Bond Communications
Issuer iShares SPDR State Street Global Advisors
AUM 40.23B 14.09B
Avg. Return 6.58% 29.04%
Div. Yield 2.48% 0.62%
Expense Ratio 0.14% 0.12%

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 Communication Services Select Sector SPDR Fund (XLC) is a Communications fund that is issued by SPDR State Street Global Advisors. It currently has 14.09B total assets under management and has yielded an average annual return of 29.04% over the past 10 years. The fund has a dividend yield of 0.62% with an expense ratio of 0.12%.

LQD’s dividend yield is 1.86% higher than that of XLC (2.48% vs. 0.62%). Also, LQD yielded on average 22.46% less per year over the past decade (6.58% vs. 29.04%). The expense ratio of LQD is 0.02 percentage points higher than XLC’s (0.14% vs. 0.12%).

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.

XLC - Holdings

XLC Holdings Weight
Facebook Inc A 23.75%
Alphabet Inc A 11.49%
Alphabet Inc Class C 11.16%
Netflix Inc 4.78%
Charter Communications Inc A 4.65%
Comcast Corp Class A 4.44%
T-Mobile US Inc 4.41%
The Walt Disney Co 4.39%
AT&T Inc 4.35%
Verizon Communications Inc 4.33%

XLC’s Top Holdings are Facebook Inc A, Alphabet Inc A, Alphabet Inc Class C, Netflix Inc, and Charter Communications Inc A at 23.75%, 11.49%, 11.16%, 4.78%, and 4.65%.

Comcast Corp Class A (4.44%), T-Mobile US Inc (4.41%), and The Walt Disney Co (4.39%) have a slightly smaller but still significant weight. AT&T Inc and Verizon Communications Inc are also represented in the XLC’s holdings at 4.35% and 4.33%.

Risk Analysis

LQD XLC
Mean Return 0.47 0
R-squared 66.93 0
Std. Deviation 5.94 0
Alpha 0.52 0
Beta 1.62 0
Sharpe Ratio 0.85 0
Treynor Ratio 3.08 0

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

The Communication Services Select Sector SPDR Fund (XLC) has a R-squared of 0 with a Beta of 0 and a Mean Return of 0. Its Treynor Ratio is 0 while XLC’s Standard Deviation is 0. Furthermore, the fund has a Sharpe Ratio of 0 and a Alpha of 0.

LQD’s Mean Return is 0.47 points higher than that of XLC and its R-squared is 66.93 points higher. With a Standard Deviation of 5.94, LQD is slightly more volatile than XLC. The Alpha and Beta of LQD are 0.52 points higher and 1.62 points higher than XLC’s Alpha and Beta.

Performance

Annual Returns

LQD vs. XLC - Annual Returns

Year LQD XLC
2020 11.14% 26.85%
2019 17.13% 31.22%
2018 -3.76% 0.0%
2017 7.16% 0.0%
2016 5.97% 0.0%
2015 -1.08% 0.0%
2014 8.57% 0.0%
2013 -2.49% 0.0%
2012 11.68% 0.0%
2011 8.89% 0.0%
2010 9.15% 0.0%

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 XLC, returning 31.22% on an annual basis. The poorest year for XLC in the last ten years was 2018, with a yield of 0.0%. Most years the Communication Services Select Sector SPDR Fund has given investors modest returns, such as in 2014, 2013, and 2012, when gains were 0.0%, 0.0%, and 0.0% respectively.

Portfolio Growth

LQD vs. XLC - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $13,017 6.58%
XLC $10,000 $16,645 29.04%

A $10,000 investment in LQD would have resulted in a final balance of $13,017. This is a profit of $3,017 over 2 years and amounts to a compound annual growth rate (CAGR) of 6.58%.

With a $10,000 investment in XLC, the end total would have been $16,645. This equates to a $6,645 profit over 2 years and a compound annual growth rate (CAGR) of 29.04%.

LQD’s CAGR is 22.46 percentage points lower than that of XLC and as a result, would have yielded $3,628 less on a $10,000 investment. Thus, LQD performed worse than XLC by 22.46% annually.


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