LQD vs. XLE: What’s The Difference?

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

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

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

Summary

LQD XLE
Name iShares iBoxx $ Investment Grade Corporate Bond ETF Energy Select Sector SPDR Fund
Category Corporate Bond Equity Energy
Issuer iShares SPDR State Street Global Advisors
AUM 40.23B 25.55B
Avg. Return 6.58% 1.28%
Div. Yield 2.48% 3.92%
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 Energy Select Sector SPDR Fund (XLE) is a Equity Energy fund that is issued by SPDR State Street Global Advisors. It currently has 25.55B total assets under management and has yielded an average annual return of 1.28% over the past 10 years. The fund has a dividend yield of 3.92% with an expense ratio of 0.12%.

LQD’s dividend yield is 1.44% lower than that of XLE (2.48% vs. 3.92%). Also, LQD yielded on average 5.30% more per year over the past decade (6.58% vs. 1.28%). The expense ratio of LQD is 0.02 percentage points higher than XLE’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.

XLE - Holdings

XLE Holdings Weight
Exxon Mobil Corp 23.7%
Chevron Corp 20.03%
ConocoPhillips 4.64%
EOG Resources Inc 4.46%
Schlumberger Ltd 4.43%
Marathon Petroleum Corp 4.17%
Pioneer Natural Resources Co 4.08%
Phillips 66 4.07%
Kinder Morgan Inc Class P 3.85%
Williams Companies Inc 3.5%

XLE’s Top Holdings are Exxon Mobil Corp, Chevron Corp, ConocoPhillips, EOG Resources Inc, and Schlumberger Ltd at 23.7%, 20.03%, 4.64%, 4.46%, and 4.43%.

Marathon Petroleum Corp (4.17%), Pioneer Natural Resources Co (4.08%), and Phillips 66 (4.07%) have a slightly smaller but still significant weight. Kinder Morgan Inc Class P and Williams Companies Inc are also represented in the XLE’s holdings at 3.85% and 3.5%.

Risk Analysis

LQD XLE
Mean Return 0.47 0.32
R-squared 66.93 61.84
Std. Deviation 5.94 27.52
Alpha 0.52 -11.98
Beta 1.62 1.54
Sharpe Ratio 0.85 0.12
Treynor Ratio 3.08 -0.4

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

The Energy Select Sector SPDR Fund (XLE) has a Standard Deviation of 27.52 with a Mean Return of 0.32 and a Alpha of -11.98. Its Beta is 1.54 while XLE’s Sharpe Ratio is 0.12. Furthermore, the fund has a R-squared of 61.84 and a Treynor Ratio of -0.4.

LQD’s Mean Return is 0.15 points higher than that of XLE and its R-squared is 5.09 points higher. With a Standard Deviation of 5.94, LQD is slightly less volatile than XLE. The Alpha and Beta of LQD are 12.50 points higher and 0.08 points higher than XLE’s Alpha and Beta.

Performance

Annual Returns

LQD vs. XLE - Annual Returns

Year LQD XLE
2020 11.14% -32.56%
2019 17.13% 11.87%
2018 -3.76% -18.1%
2017 7.16% -1.01%
2016 5.97% 27.95%
2015 -1.08% -21.47%
2014 8.57% -8.61%
2013 -2.49% 26.16%
2012 11.68% 5.17%
2011 8.89% 2.98%
2010 9.15% 21.7%

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 2016 was the strongest year for XLE, returning 27.95% on an annual basis. The poorest year for XLE in the last ten years was 2020, with a yield of -32.56%. Most years the Energy Select Sector SPDR Fund has given investors modest returns, such as in 2017, 2011, and 2012, when gains were -1.01%, 2.98%, and 5.17% respectively.

Portfolio Growth

LQD vs. XLE - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
XLE $10,000 $9,339 1.28%

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 XLE, the end total would have been $9,339. This equates to a $-661 profit over 11 years and a compound annual growth rate (CAGR) of 1.28%.

LQD’s CAGR is 5.30 percentage points higher than that of XLE and as a result, would have yielded $10,437 more on a $10,000 investment. Thus, LQD outperformed XLE by 5.30% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply