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QUAL vs. GOVT: What’s The Difference?

The iShares MSCI USA Quality Factor ETF (QUAL) and the iShares U.S. Treasury Bond ETF (GOVT) are both among the Top 100 ETFs. QUAL is a iShares Large Blend fund and GOVT is a iShares Intermediate Government fund. So, what’s the difference between QUAL and GOVT? And which fund is better?

The expense ratio of QUAL is 0.10 percentage points higher than GOVT’s (0.15% vs. 0.05%). QUAL also has a high exposure to the technology sector while GOVT is mostly comprised of AAA bonds. Overall, QUAL has provided higher returns than GOVT over the past 7 years.

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

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Summary

QUALGOVT
NameiShares MSCI USA Quality Factor ETFiShares U.S. Treasury Bond ETF
CategoryLarge BlendIntermediate Government
IssueriSharesiShares
AUM23.93B17.07B
Avg. Return13.42%2.67%
Div. Yield1.29%1.0%
Expense Ratio0.15%0.05%

The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

The iShares U.S. Treasury Bond ETF (GOVT) is a Intermediate Government fund that is issued by iShares. It currently has 17.07B total assets under management and has yielded an average annual return of 2.67% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.05%.

QUAL’s dividend yield is 0.29% higher than that of GOVT (1.29% vs. 1.0%). Also, QUAL yielded on average 10.75% more per year over the past decade (13.42% vs. 2.67%). The expense ratio of QUAL is 0.10 percentage points higher than GOVT’s (0.15% vs. 0.05%).

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Fund Composition

Holdings

QUAL - Holdings

QUAL HoldingsWeight
Facebook Inc Class A4.77%
Nike Inc Class B4.05%
Microsoft Corp3.54%
Apple Inc3.52%
Johnson & Johnson2.99%
BlackRock Inc2.87%
Target Corp2.8%
Mastercard Inc Class A2.72%
NVIDIA Corp2.71%
Alphabet Inc Class A2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

GOVT - Holdings

GOVT Bond SectorsWeight
AAA100.0%
Others0.0%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

GOVT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

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Risk Analysis

QUALGOVT
Mean Return00
R-squared00
Std. Deviation00
Alpha00
Beta00
Sharpe Ratio00
Treynor Ratio00

The iShares MSCI USA Quality Factor ETF (QUAL) has a Treynor Ratio of 0 with a Standard Deviation of 0 and a Alpha of 0. Its Sharpe Ratio is 0 while QUAL’s Mean Return is 0. Furthermore, the fund has a R-squared of 0 and a Beta of 0.

The iShares U.S. Treasury Bond ETF (GOVT) has a R-squared of 0 with a Alpha of 0 and a Treynor Ratio of 0. Its Mean Return is 0 while GOVT’s Standard Deviation is 0. Furthermore, the fund has a Beta of 0 and a Sharpe Ratio of 0.

QUAL’s Mean Return is 0.00 points lower than that of GOVT and its R-squared is 0.00 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than GOVT. The Alpha and Beta of QUAL are 0.00 points lower and 0.00 points lower than GOVT’s Alpha and Beta.

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Performance

Annual Returns

QUAL vs. GOVT - Annual Returns

YearQUALGOVT
202016.96%7.92%
201934.14%6.71%
2018-5.77%0.74%
201722.26%2.19%
20169.18%0.92%
20155.56%0.76%
201411.62%4.99%
20130.0%-2.84%
20120.0%0.0%
20110.0%0.0%
20100.0%0.0%

QUAL had its best year in 2019 with an annual return of 34.14%. QUAL’s worst year over the past decade yielded -5.77% and occurred in 2018. In most years the iShares MSCI USA Quality Factor ETF provided moderate returns such as in 2010, 2015, and 2016 where annual returns amounted to 0.0%, 5.56%, and 9.18% respectively.

The year 2020 was the strongest year for GOVT, returning 7.92% on an annual basis. The poorest year for GOVT in the last ten years was 2013, with a yield of -2.84%. Most years the iShares U.S. Treasury Bond ETF has given investors modest returns, such as in 2018, 2015, and 2016, when gains were 0.74%, 0.76%, and 0.92% respectively.

Portfolio Growth

QUAL vs. GOVT - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
QUAL$10,000$23,25113.42%
GOVT$10,000$12,6562.67%

A $10,000 investment in QUAL would have resulted in a final balance of $23,251. This is a profit of $13,251 over 7 years and amounts to a compound annual growth rate (CAGR) of 13.42%.

With a $10,000 investment in GOVT, the end total would have been $12,656. This equates to a $2,656 profit over 7 years and a compound annual growth rate (CAGR) of 2.67%.

QUAL’s CAGR is 10.75 percentage points higher than that of GOVT and as a result, would have yielded $10,595 more on a $10,000 investment. Thus, QUAL outperformed GOVT by 10.75% annually.


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