VCSH vs. LQD: What’s The Difference?

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

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

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

Summary

VCSH LQD
Name Vanguard Short-Term Corporate Bond Index Fund ETF Shares iShares iBoxx $ Investment Grade Corporate Bond ETF
Category Short-Term Bond Corporate Bond
Issuer Vanguard iShares
AUM 47.88B 40.23B
Avg. Return 3.12% 6.58%
Div. Yield 1.89% 2.48%
Expense Ratio 0.05% 0.14%

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) is a Short-Term Bond fund that is issued by Vanguard. It currently has 47.88B total assets under management and has yielded an average annual return of 3.12% over the past 10 years. The fund has a dividend yield of 1.89% 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%.

VCSH’s dividend yield is 0.59% lower than that of LQD (1.89% vs. 2.48%). Also, VCSH yielded on average 3.46% less per year over the past decade (3.12% vs. 6.58%). The expense ratio of VCSH is 0.09 percentage points lower than LQD’s (0.05% vs. 0.14%).

Fund Composition

Holdings

VCSH - Holdings

VCSH Bond Sectors Weight
BBB 47.49%
A 43.06%
AA 8.45%
AAA 0.95%
Below B 0.03%
Others 0.02%
B 0.0%
BB 0.0%
US Government 0.0%

VCSH’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 47.49%, 43.06%, 8.45%, 0.95%, and 0.03%. The fund is less weighted towards Others (0.02%), B (0.0%), and BB (0.0%) rated bonds.

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.

Risk Analysis

VCSH LQD
Mean Return 0.24 0.47
R-squared 37.53 66.93
Std. Deviation 2.34 5.94
Alpha 0.93 0.52
Beta 0.48 1.62
Sharpe Ratio 0.97 0.85
Treynor Ratio 4.75 3.08

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) has a Alpha of 0.93 with a R-squared of 37.53 and a Sharpe Ratio of 0.97. Its Beta is 0.48 while VCSH’s Treynor Ratio is 4.75. Furthermore, the fund has a Standard Deviation of 2.34 and a Mean Return of 0.24.

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

VCSH’s Mean Return is 0.23 points lower than that of LQD and its R-squared is 29.40 points lower. With a Standard Deviation of 2.34, VCSH is slightly less volatile than LQD. The Alpha and Beta of VCSH are 0.41 points higher and 1.14 points lower than LQD’s Alpha and Beta.

Performance

Annual Returns

VCSH vs. LQD - Annual Returns

Year VCSH LQD
2020 5.08% 11.14%
2019 6.85% 17.13%
2018 0.91% -3.76%
2017 2.45% 7.16%
2016 2.63% 5.97%
2015 1.25% -1.08%
2014 1.96% 8.57%
2013 1.37% -2.49%
2012 5.74% 11.68%
2011 2.94% 8.89%
2010 5.51% 9.15%

VCSH had its best year in 2019 with an annual return of 6.85%. VCSH’s worst year over the past decade yielded 0.91% and occurred in 2018. In most years the Vanguard Short-Term Corporate Bond Index Fund ETF Shares provided moderate returns such as in 2017, 2016, and 2011 where annual returns amounted to 2.45%, 2.63%, and 2.94% 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

VCSH vs. LQD - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCSH $10,000 $13,569 3.12%
LQD $10,000 $18,118 6.58%

A $10,000 investment in VCSH would have resulted in a final balance of $13,569. This is a profit of $3,569 over 10 years and amounts to a compound annual growth rate (CAGR) of 3.12%.

With a $10,000 investment in LQD, the end total would have been $18,118. This equates to a $8,118 profit over 10 years and a compound annual growth rate (CAGR) of 6.58%.

VCSH’s CAGR is 3.46 percentage points lower than that of LQD and as a result, would have yielded $4,549 less on a $10,000 investment. Thus, VCSH performed worse than LQD by 3.46% annually.


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