QUAL vs. IEF: What’s The Difference?

The iShares MSCI USA Quality Factor ETF (QUAL) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. QUAL is a iShares Large Blend fund and IEF is a iShares Long Government fund. So, what’s the difference between QUAL and IEF? And which fund is better?

QUAL and IEF have the same expense ratio: 0.15%. QUAL also has a high exposure to the technology sector while IEF is mostly comprised of AAA bonds. Overall, QUAL has provided higher returns than IEF over the past 7 years.

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

Summary

QUAL IEF
Name iShares MSCI USA Quality Factor ETF iShares 7-10 Year Treasury Bond ETF
Category Large Blend Long Government
Issuer iShares iShares
AUM 23.93B 13.44B
Avg. Return 13.42% 5.06%
Div. Yield 1.29% 0.84%
Expense Ratio 0.15% 0.15%

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 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

QUAL’s dividend yield is 0.45% higher than that of IEF (1.29% vs. 0.84%). Also, QUAL yielded on average 8.36% more per year over the past decade (13.42% vs. 5.06%). QUAL and IEF have the same expense ratio: 0.15%.

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Fund Composition

Holdings

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

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%.

IEF - Holdings

IEF Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

IEF’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

QUAL IEF
Mean Return 0 0.32
R-squared 0 77.56
Std. Deviation 0 5.42
Alpha 0 -1.2
Beta 0 1.59
Sharpe Ratio 0 0.6
Treynor Ratio 0 1.97

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

The iShares 7-10 Year Treasury Bond ETF (IEF) has a Sharpe Ratio of 0.6 with a Mean Return of 0.32 and a Standard Deviation of 5.42. Its Treynor Ratio is 1.97 while IEF’s Beta is 1.59. Furthermore, the fund has a Alpha of -1.2 and a R-squared of 77.56.

QUAL’s Mean Return is 0.32 points lower than that of IEF and its R-squared is 77.56 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than IEF. The Alpha and Beta of QUAL are 1.20 points higher and 1.59 points lower than IEF’s Alpha and Beta.

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Performance

Annual Returns

QUAL vs. IEF - Annual Returns

Year QUAL IEF
2020 16.96% 9.84%
2019 34.14% 8.38%
2018 -5.77% 0.82%
2017 22.26% 2.47%
2016 9.18% 1.0%
2015 5.56% 1.55%
2014 11.62% 8.92%
2013 0.0% -6.12%
2012 0.0% 4.06%
2011 0.0% 15.46%
2010 0.0% 9.29%

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 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

QUAL vs. IEF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
QUAL $10,000 $23,251 13.42%
IEF $10,000 $13,739 5.06%

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 IEF, the end total would have been $13,739. This equates to a $3,739 profit over 7 years and a compound annual growth rate (CAGR) of 5.06%.

QUAL’s CAGR is 8.36 percentage points higher than that of IEF and as a result, would have yielded $9,512 more on a $10,000 investment. Thus, QUAL outperformed IEF by 8.36% annually.


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