The iShares MSCI USA Quality Factor ETF (QUAL) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. QUAL is a iShares Large Blend fund and TLT is a iShares Long Government fund. So, what’s the difference between QUAL and TLT? And which fund is better?
QUAL and TLT have the same expense ratio: 0.15%. QUAL also has a high exposure to the technology sector while TLT is mostly comprised of AAA bonds. Overall, QUAL has provided higher returns than TLT over the past 7 years.
In this article, we’ll compare QUAL vs. TLT. We’ll look at portfolio growth and performance, as well as at their holdings and industry exposure. Moreover, I’ll also discuss QUAL’s and TLT’s risk metrics, annual returns, and fund composition and examine how these affect their overall returns.
Summary
| QUAL | TLT | |
| Name | iShares MSCI USA Quality Factor ETF | iShares 20+ Year Treasury Bond ETF |
| Category | Large Blend | Long Government |
| Issuer | iShares | iShares |
| AUM | 23.93B | 15.15B |
| Avg. Return | 13.42% | 9.00% |
| Div. Yield | 1.29% | 1.5% |
| 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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.
QUAL’s dividend yield is 0.21% lower than that of TLT (1.29% vs. 1.5%). Also, QUAL yielded on average 4.43% more per year over the past decade (13.42% vs. 9.00%). QUAL and TLT have the same expense ratio: 0.15%.
Fund Composition
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%.
| TLT 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% |
TLT’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.
Risk Analysis
| QUAL | TLT | |
| Mean Return | 0 | 0.63 |
| R-squared | 0 | 68.76 |
| Std. Deviation | 0 | 12.76 |
| Alpha | 0 | -2.83 |
| Beta | 0 | 3.54 |
| Sharpe Ratio | 0 | 0.55 |
| Treynor Ratio | 0 | 1.82 |
The iShares MSCI USA Quality Factor ETF (QUAL) has a Sharpe Ratio of 0 with a Alpha of 0 and a Mean Return of 0. Its Standard Deviation is 0 while QUAL’s Beta is 0. Furthermore, the fund has a R-squared of 0 and a Treynor Ratio of 0.
The iShares 20+ Year Treasury Bond ETF (TLT) has a Standard Deviation of 12.76 with a Sharpe Ratio of 0.55 and a Mean Return of 0.63. Its Treynor Ratio is 1.82 while TLT’s R-squared is 68.76. Furthermore, the fund has a Alpha of -2.83 and a Beta of 3.54.
QUAL’s Mean Return is 0.63 points lower than that of TLT and its R-squared is 68.76 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than TLT. The Alpha and Beta of QUAL are 2.83 points higher and 3.54 points lower than TLT’s Alpha and Beta.
Performance
Annual Returns
| Year | QUAL | TLT |
| 2020 | 16.96% | 17.92% |
| 2019 | 34.14% | 14.93% |
| 2018 | -5.77% | -2.07% |
| 2017 | 22.26% | 8.92% |
| 2016 | 9.18% | 1.36% |
| 2015 | 5.56% | -1.65% |
| 2014 | 11.62% | 27.35% |
| 2013 | 0.0% | -13.91% |
| 2012 | 0.0% | 3.25% |
| 2011 | 0.0% | 33.6% |
| 2010 | 0.0% | 9.25% |
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 TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| QUAL | $10,000 | $23,251 | 13.42% |
| TLT | $10,000 | $18,352 | 9.00% |
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 TLT, the end total would have been $18,352. This equates to a $8,352 profit over 7 years and a compound annual growth rate (CAGR) of 9.00%.
QUAL’s CAGR is 4.43 percentage points higher than that of TLT and as a result, would have yielded $4,899 more on a $10,000 investment. Thus, QUAL outperformed TLT by 4.43% annually.
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