The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between VNQ and LQD? And which fund is better?
The expense ratio of VNQ is 0.02 percentage points lower than LQD’s (0.12% vs. 0.14%). VNQ also has a high exposure to the real estate sector while LQD is mostly comprised of BBB bonds. Overall, VNQ has provided higher returns than LQD over the past ten years.
In this article, we’ll compare VNQ vs. LQD. We’ll look at fund composition and industry exposure, as well as at their holdings and portfolio growth. Moreover, I’ll also discuss VNQ’s and LQD’s annual returns, performance, and risk metrics and examine how these affect their overall returns.
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Summary
| VNQ | LQD | |
| NameVanguard Real Estate Index Fund ETF SharesiShares iBoxx $ Investment Grade Corporate Bond ETF | ||
| Category | Real Estate | Corporate Bond |
| Issuer | Vanguard | iShares |
| AUM | 77.34B | 40.23B |
| Avg. Return | 11.05% | 6.58% |
| Div. Yield | 2.34% | 2.48% |
| Expense Ratio | 0.12% | 0.14% |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) is a Real Estate fund that is issued by Vanguard. It currently has 77.34B total assets under management and has yielded an average annual return of 11.05% over the past 10 years. The fund has a dividend yield of 2.34% with an expense ratio of 0.12%.
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%.
VNQ’s dividend yield is 0.14% lower than that of LQD (2.34% vs. 2.48%). Also, VNQ yielded on average 4.47% more per year over the past decade (11.05% vs. 6.58%). The expense ratio of VNQ is 0.02 percentage points lower than LQD’s (0.12% vs. 0.14%).
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Fund Composition
Holdings
| VNQ Holdings | Weight |
| Vanguard Real Estate II Index | 11.62% |
| American Tower Corp | 7.24% |
| Prologis Inc | 5.33% |
| Crown Castle International Corp | 5.01% |
| Equinix Inc | 4.3% |
| Public Storage | 2.85% |
| Simon Property Group Inc | 2.52% |
| Digital Realty Trust Inc | 2.49% |
| SBA Communications Corp | 2.1% |
| Welltower Inc | 2.09% |
VNQ’s Top Holdings are Vanguard Real Estate II Index, American Tower Corp, Prologis Inc, Crown Castle International Corp, and Equinix Inc at 11.62%, 7.24%, 5.33%, 5.01%, and 4.3%.
Public Storage (2.85%), Simon Property Group Inc (2.52%), and Digital Realty Trust Inc (2.49%) have a slightly smaller but still significant weight. SBA Communications Corp and Welltower Inc are also represented in the VNQ’s holdings at 2.1% and 2.09%.
| 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
| VNQ | LQD | |
| Mean Return | 0.89 | 0.47 |
| R-squared | 44.4 | 66.93 |
| Std. Deviation | 16.13 | 5.94 |
| Alpha | 2.47 | 0.52 |
| Beta | 0.76 | 1.62 |
| Sharpe Ratio | 0.62 | 0.85 |
| Treynor Ratio | 11.9 | 3.08 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Sharpe Ratio of 0.62 with a Beta of 0.76 and a Treynor Ratio of 11.9. Its Mean Return is 0.89 while VNQ’s Standard Deviation is 16.13. Furthermore, the fund has a Alpha of 2.47 and a R-squared of 44.4.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a R-squared of 66.93 with a Alpha of 0.52 and a Standard Deviation of 5.94. Its Mean Return is 0.47 while LQD’s Beta is 1.62. Furthermore, the fund has a Sharpe Ratio of 0.85 and a Treynor Ratio of 3.08.
VNQ’s Mean Return is 0.42 points higher than that of LQD and its R-squared is 22.53 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than LQD. The Alpha and Beta of VNQ are 1.95 points higher and 0.86 points lower than LQD’s Alpha and Beta.
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Performance
Annual Returns
| Year | VNQ | LQD |
| 2020 | -4.72% | 11.14% |
| 2019 | 28.91% | 17.13% |
| 2018 | -5.95% | -3.76% |
| 2017 | 4.95% | 7.16% |
| 2016 | 8.53% | 5.97% |
| 2015 | 2.37% | -1.08% |
| 2014 | 30.29% | 8.57% |
| 2013 | 2.42% | -2.49% |
| 2012 | 17.67% | 11.68% |
| 2011 | 8.62% | 8.89% |
| 2010 | 28.44% | 9.15% |
VNQ had its best year in 2014 with an annual return of 30.29%. VNQ’s worst year over the past decade yielded -5.95% and occurred in 2018. In most years the Vanguard Real Estate Index Fund ETF Shares provided moderate returns such as in 2017, 2016, and 2011 where annual returns amounted to 4.95%, 8.53%, and 8.62% 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
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $29,506 | 11.05% |
| LQD | $10,000 | $19,776 | 6.58% |
A $10,000 investment in VNQ would have resulted in a final balance of $29,506. This is a profit of $19,506 over 11 years and amounts to a compound annual growth rate (CAGR) of 11.05%.
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%.
VNQ’s CAGR is 4.47 percentage points higher than that of LQD and as a result, would have yielded $9,730 more on a $10,000 investment. Thus, VNQ outperformed LQD by 4.47% annually.
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