LQD vs. XLV: Fund Composition, Risk Analysis & Performance

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

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

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

Summary

LQD XLV
Name iShares iBoxx $ Investment Grade Corporate Bond ETF Health Care Select Sector SPDR Fund
Category Corporate Bond Health
Issuer iShares SPDR State Street Global Advisors
AUM 40.23B 27.88B
Avg. Return 6.58% 15.02%
Div. Yield 2.48% 1.4%
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 Health Care Select Sector SPDR Fund (XLV) is a Health fund that is issued by SPDR State Street Global Advisors. It currently has 27.88B total assets under management and has yielded an average annual return of 15.02% over the past 10 years. The fund has a dividend yield of 1.4% with an expense ratio of 0.12%.

LQD’s dividend yield is 1.08% higher than that of XLV (2.48% vs. 1.4%). Also, LQD yielded on average 8.45% less per year over the past decade (6.58% vs. 15.02%). The expense ratio of LQD is 0.02 percentage points higher than XLV’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.

XLV - Holdings

XLV Holdings Weight
Johnson & Johnson 9.19%
UnitedHealth Group Inc 8.01%
Pfizer Inc 4.64%
Abbott Laboratories 4.36%
AbbVie Inc 4.21%
Thermo Fisher Scientific Inc 4.2%
Merck & Co Inc 4.17%
Eli Lilly and Co 3.87%
Danaher Corp 3.61%
Medtronic PLC 3.54%

XLV’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and AbbVie Inc at 9.19%, 8.01%, 4.64%, 4.36%, and 4.21%.

Thermo Fisher Scientific Inc (4.2%), Merck & Co Inc (4.17%), and Eli Lilly and Co (3.87%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the XLV’s holdings at 3.61% and 3.54%.

Risk Analysis

LQD XLV
Mean Return 0.47 1.27
R-squared 66.93 58.19
Std. Deviation 5.94 12.94
Alpha 0.52 7.75
Beta 1.62 0.7
Sharpe Ratio 0.85 1.13
Treynor Ratio 3.08 21.1

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

The Health Care Select Sector SPDR Fund (XLV) has a Treynor Ratio of 21.1 with a Beta of 0.7 and a Sharpe Ratio of 1.13. Its R-squared is 58.19 while XLV’s Alpha is 7.75. Furthermore, the fund has a Standard Deviation of 12.94 and a Mean Return of 1.27.

LQD’s Mean Return is 0.80 points lower than that of XLV and its R-squared is 8.74 points higher. With a Standard Deviation of 5.94, LQD is slightly less volatile than XLV. The Alpha and Beta of LQD are 7.23 points lower and 0.92 points higher than XLV’s Alpha and Beta.

Performance

Annual Returns

LQD vs. XLV - Annual Returns

Year LQD XLV
2020 11.14% 13.33%
2019 17.13% 20.63%
2018 -3.76% 6.3%
2017 7.16% 21.7%
2016 5.97% -2.83%
2015 -1.08% 6.82%
2014 8.57% 25.17%
2013 -2.49% 41.24%
2012 11.68% 17.56%
2011 8.89% 12.44%
2010 9.15% 2.91%

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 XLV, returning 41.24% on an annual basis. The poorest year for XLV in the last ten years was 2016, with a yield of -2.83%. Most years the Health Care Select Sector SPDR Fund has given investors modest returns, such as in 2011, 2020, and 2012, when gains were 12.44%, 13.33%, and 17.56% respectively.

Portfolio Growth

LQD vs. XLV - Portfolio Growth

Fund Initial Balance Final Balance CAGR
LQD $10,000 $19,776 6.58%
XLV $10,000 $44,147 15.02%

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 XLV, the end total would have been $44,147. This equates to a $34,147 profit over 11 years and a compound annual growth rate (CAGR) of 15.02%.

LQD’s CAGR is 8.45 percentage points lower than that of XLV and as a result, would have yielded $24,371 less on a $10,000 investment. Thus, LQD performed worse than XLV by 8.45% annually.


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