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VB vs. LQD: What’s The Difference?

The Vanguard Small-Cap Index Fund ETF Shares (VB) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. VB is a Vanguard Small Blend fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between VB and LQD? And which fund is better?

The expense ratio of VB is 0.09 percentage points lower than LQD’s (0.05% vs. 0.14%). VB also has a high exposure to the technology sector while LQD is mostly comprised of BBB bonds. Overall, VB has provided higher returns than LQD over the past ten years.

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

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Summary

VBLQD
NameVanguard Small-Cap Index Fund ETF SharesiShares iBoxx $ Investment Grade Corporate Bond ETF
CategorySmall BlendCorporate Bond
IssuerVanguardiShares
AUM137.72B40.23B
Avg. Return14.25%6.58%
Div. Yield1.14%2.48%
Expense Ratio0.05%0.14%

The Vanguard Small-Cap Index Fund ETF Shares (VB) is a Small Blend fund that is issued by Vanguard. It currently has 137.72B total assets under management and has yielded an average annual return of 14.25% over the past 10 years. The fund has a dividend yield of 1.14% with an expense ratio of 0.05%.

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%.

VB’s dividend yield is 1.34% lower than that of LQD (1.14% vs. 2.48%). Also, VB yielded on average 7.68% more per year over the past decade (14.25% vs. 6.58%). The expense ratio of VB is 0.09 percentage points lower than LQD’s (0.05% vs. 0.14%).

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Fund Composition

Holdings

VB - Holdings

VB HoldingsWeight
Charles River Laboratories International Inc0.34%
Pool Corp0.32%
Bio-Techne Corp0.32%
Avantor Inc0.32%
PerkinElmer Inc0.31%
Diamondback Energy Inc0.31%
VICI Properties Inc Ordinary Shares0.3%
IDEX Corp0.3%
Entegris Inc0.3%
Novavax Inc0.29%

VB’s Top Holdings are Charles River Laboratories International Inc, Pool Corp, Bio-Techne Corp, Avantor Inc, and PerkinElmer Inc at 0.34%, 0.32%, 0.32%, 0.32%, and 0.31%.

Diamondback Energy Inc (0.31%), VICI Properties Inc Ordinary Shares (0.3%), and IDEX Corp (0.3%) have a slightly smaller but still significant weight. Entegris Inc and Novavax Inc are also represented in the VB’s holdings at 0.3% and 0.29%.

LQD - Holdings

LQD Bond SectorsWeight
BBB50.92%
A37.97%
AA8.49%
AAA2.7%
BB0.05%
Below B0.0%
B0.0%
US Government0.0%
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.

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Risk Analysis

VBLQD
Mean Return1.150.47
R-squared85.0366.93
Std. Deviation17.825.94
Alpha-4.020.52
Beta1.211.62
Sharpe Ratio0.740.85
Treynor Ratio10.153.08

The Vanguard Small-Cap Index Fund ETF Shares (VB) has a Treynor Ratio of 10.15 with a Alpha of -4.02 and a R-squared of 85.03. Its Sharpe Ratio is 0.74 while VB’s Mean Return is 1.15. Furthermore, the fund has a Standard Deviation of 17.82 and a Beta of 1.21.

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

VB’s Mean Return is 0.68 points higher than that of LQD and its R-squared is 18.10 points higher. With a Standard Deviation of 17.82, VB is slightly more volatile than LQD. The Alpha and Beta of VB are 4.54 points lower and 0.41 points lower than LQD’s Alpha and Beta.

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Performance

Annual Returns

VB vs. LQD - Annual Returns

YearVBLQD
202019.08%11.14%
201927.37%17.13%
2018-9.3%-3.76%
201716.24%7.16%
201618.31%5.97%
2015-3.65%-1.08%
20147.51%8.57%
201337.8%-2.49%
201218.22%11.68%
2011-2.68%8.89%
201027.89%9.15%

VB had its best year in 2013 with an annual return of 37.8%. VB’s worst year over the past decade yielded -9.3% and occurred in 2018. In most years the Vanguard Small-Cap Index Fund ETF Shares provided moderate returns such as in 2017, 2012, and 2016 where annual returns amounted to 16.24%, 18.22%, and 18.31% respectively.

The year 2019 was the strongest year for LQD, returning 17.13% on an annual basis. The poorest year for LQD in the last ten years was 2018, with a yield of -3.76%. Most years the iShares iBoxx $ Investment Grade Corporate Bond ETF has given investors modest returns, such as in 2017, 2014, and 2011, when gains were 7.16%, 8.57%, and 8.89% respectively.

Portfolio Growth

VB vs. LQD - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VB$10,000$39,73414.25%
LQD$10,000$19,7766.58%

A $10,000 investment in VB would have resulted in a final balance of $39,734. This is a profit of $29,734 over 11 years and amounts to a compound annual growth rate (CAGR) of 14.25%.

With a $10,000 investment in LQD, the end total would have been $19,776. This equates to a $9,776 profit over 11 years and a compound annual growth rate (CAGR) of 6.58%.

VB’s CAGR is 7.68 percentage points higher than that of LQD and as a result, would have yielded $19,958 more on a $10,000 investment. Thus, VB outperformed LQD by 7.68% annually.


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