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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.

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Summary

LQDXLE
NameiShares iBoxx $ Investment Grade Corporate Bond ETFEnergy Select Sector SPDR Fund
CategoryCorporate BondEquity Energy
IssueriSharesSPDR State Street Global Advisors
AUM40.23B25.55B
Avg. Return6.58%1.28%
Div. Yield2.48%3.92%
Expense Ratio0.14%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%).

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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.

XLE - Holdings

XLE HoldingsWeight
Exxon Mobil Corp23.7%
Chevron Corp20.03%
ConocoPhillips4.64%
EOG Resources Inc4.46%
Schlumberger Ltd4.43%
Marathon Petroleum Corp4.17%
Pioneer Natural Resources Co4.08%
Phillips 664.07%
Kinder Morgan Inc Class P3.85%
Williams Companies Inc3.5%

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%.

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Risk Analysis

LQDXLE
Mean Return0.470.32
R-squared66.9361.84
Std. Deviation5.9427.52
Alpha0.52-11.98
Beta1.621.54
Sharpe Ratio0.850.12
Treynor Ratio3.08-0.4

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.

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Performance

Annual Returns

LQD vs. XLE - Annual Returns

YearLQDXLE
202011.14%-32.56%
201917.13%11.87%
2018-3.76%-18.1%
20177.16%-1.01%
20165.97%27.95%
2015-1.08%-21.47%
20148.57%-8.61%
2013-2.49%26.16%
201211.68%5.17%
20118.89%2.98%
20109.15%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

FundInitial BalanceFinal BalanceCAGR
LQD$10,000$19,7766.58%
XLE$10,000$9,3391.28%

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.


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