LQD vs. XLI: What’s The Difference?

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

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

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

Summary

LQD XLI
Name iShares iBoxx $ Investment Grade Corporate Bond ETF Industrial Select Sector SPDR Fund
Category Corporate Bond Industrials
Issuer iShares SPDR State Street Global Advisors
AUM 40.23B 19.33B
Avg. Return 6.58% 14.44%
Div. Yield 2.48% 1.25%
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 Industrial Select Sector SPDR Fund (XLI) is a Industrials fund that is issued by SPDR State Street Global Advisors. It currently has 19.33B total assets under management and has yielded an average annual return of 14.44% over the past 10 years. The fund has a dividend yield of 1.25% with an expense ratio of 0.12%.

LQD’s dividend yield is 1.23% higher than that of XLI (2.48% vs. 1.25%). Also, LQD yielded on average 7.86% less per year over the past decade (6.58% vs. 14.44%). The expense ratio of LQD is 0.02 percentage points higher than XLI’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.

XLI - Holdings

XLI Holdings Weight
Honeywell International Inc 4.9%
United Parcel Service Inc Class B 4.84%
Union Pacific Corp 4.7%
Boeing Co 4.24%
Raytheon Technologies Corp 4.16%
Caterpillar Inc 3.84%
General Electric Co 3.8%
3M Co 3.7%
Deere & Co 3.54%
Lockheed Martin Corp 2.98%

XLI’s Top Holdings are Honeywell International Inc, United Parcel Service Inc Class B, Union Pacific Corp, Boeing Co, and Raytheon Technologies Corp at 4.9%, 4.84%, 4.7%, 4.24%, and 4.16%.

Caterpillar Inc (3.84%), General Electric Co (3.8%), and 3M Co (3.7%) have a slightly smaller but still significant weight. Deere & Co and Lockheed Martin Corp are also represented in the XLI’s holdings at 3.54% and 2.98%.

Risk Analysis

LQD XLI
Mean Return 0.47 1.14
R-squared 66.93 78.97
Std. Deviation 5.94 17.13
Alpha 0.52 2.38
Beta 1.62 1.08
Sharpe Ratio 0.85 0.76
Treynor Ratio 3.08 11.34

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

The Industrial Select Sector SPDR Fund (XLI) has a Treynor Ratio of 11.34 with a R-squared of 78.97 and a Sharpe Ratio of 0.76. Its Alpha is 2.38 while XLI’s Beta is 1.08. Furthermore, the fund has a Mean Return of 1.14 and a Standard Deviation of 17.13.

LQD’s Mean Return is 0.67 points lower than that of XLI and its R-squared is 12.04 points lower. With a Standard Deviation of 5.94, LQD is slightly less volatile than XLI. The Alpha and Beta of LQD are 1.86 points lower and 0.54 points higher than XLI’s Alpha and Beta.

Performance

Annual Returns

LQD vs. XLI - Annual Returns

Year LQD XLI
2020 11.14% 11.0%
2019 17.13% 29.11%
2018 -3.76% -13.1%
2017 7.16% 23.85%
2016 5.97% 19.93%
2015 -1.08% -4.27%
2014 8.57% 10.44%
2013 -2.49% 40.44%
2012 11.68% 14.86%
2011 8.89% -1.01%
2010 9.15% 27.62%

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 2013 was the strongest year for XLI, returning 40.44% on an annual basis. The poorest year for XLI in the last ten years was 2018, with a yield of -13.1%. Most years the Industrial Select Sector SPDR Fund has given investors modest returns, such as in 2020, 2012, and 2016, when gains were 11.0%, 14.86%, and 19.93% respectively.

Portfolio Growth

LQD vs. XLI - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
XLI $10,000 $39,853 14.44%

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 XLI, the end total would have been $39,853. This equates to a $29,853 profit over 11 years and a compound annual growth rate (CAGR) of 14.44%.

LQD’s CAGR is 7.86 percentage points lower than that of XLI and as a result, would have yielded $20,077 less on a $10,000 investment. Thus, LQD performed worse than XLI by 7.86% annually.


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