The Vanguard Mid-Cap Index Fund ETF Shares (VO) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. VO is a Vanguard Mid-Cap Blend fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between VO and LQD? And which fund is better?
The expense ratio of VO is 0.10 percentage points lower than LQD’s (0.04% vs. 0.14%). VO also has a high exposure to the technology sector while LQD is mostly comprised of BBB bonds. Overall, VO has provided higher returns than LQD over the past ten years.
In this article, we’ll compare VO vs. LQD. We’ll look at industry exposure and risk metrics, as well as at their portfolio growth and holdings. Moreover, I’ll also discuss VO’s and LQD’s performance, fund composition, and annual returns and examine how these affect their overall returns.
Summary
| VO | LQD | |
| Name | Vanguard Mid-Cap Index Fund ETF Shares | iShares iBoxx $ Investment Grade Corporate Bond ETF |
| Category | Mid-Cap Blend | Corporate Bond |
| Issuer | Vanguard | iShares |
| AUM | 154.08B | 40.23B |
| Avg. Return | 14.34% | 6.58% |
| Div. Yield | 1.23% | 2.48% |
| Expense Ratio | 0.04% | 0.14% |
The Vanguard Mid-Cap Index Fund ETF Shares (VO) is a Mid-Cap Blend fund that is issued by Vanguard. It currently has 154.08B total assets under management and has yielded an average annual return of 14.34% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.04%.
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%.
VO’s dividend yield is 1.25% lower than that of LQD (1.23% vs. 2.48%). Also, VO yielded on average 7.76% more per year over the past decade (14.34% vs. 6.58%). The expense ratio of VO is 0.10 percentage points lower than LQD’s (0.04% vs. 0.14%).
Fund Composition
Holdings
| VO Holdings | Weight |
| IDEXX Laboratories Inc | 0.78% |
| DocuSign Inc | 0.75% |
| Marvell Technology Inc | 0.68% |
| IQVIA Holdings Inc | 0.68% |
| Chipotle Mexican Grill Inc | 0.63% |
| Veeva Systems Inc Class A | 0.62% |
| Digital Realty Trust Inc | 0.62% |
| Centene Corp | 0.62% |
| Aptiv PLC | 0.62% |
| Carrier Global Corp Ordinary Shares | 0.61% |
VO’s Top Holdings are IDEXX Laboratories Inc, DocuSign Inc, Marvell Technology Inc, IQVIA Holdings Inc, and Chipotle Mexican Grill Inc at 0.78%, 0.75%, 0.68%, 0.68%, and 0.63%.
Veeva Systems Inc Class A (0.62%), Digital Realty Trust Inc (0.62%), and Centene Corp (0.62%) have a slightly smaller but still significant weight. Aptiv PLC and Carrier Global Corp Ordinary Shares are also represented in the VO’s holdings at 0.62% and 0.61%.
| 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
| VO | LQD | |
| Mean Return | 1.14 | 0.47 |
| R-squared | 92.22 | 66.93 |
| Std. Deviation | 15.65 | 5.94 |
| Alpha | -2.71 | 0.52 |
| Beta | 1.11 | 1.62 |
| Sharpe Ratio | 0.83 | 0.85 |
| Treynor Ratio | 11.32 | 3.08 |
The Vanguard Mid-Cap Index Fund ETF Shares (VO) has a Alpha of -2.71 with a Standard Deviation of 15.65 and a Mean Return of 1.14. Its Sharpe Ratio is 0.83 while VO’s R-squared is 92.22. Furthermore, the fund has a Beta of 1.11 and a Treynor Ratio of 11.32.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Alpha of 0.52 with a Sharpe Ratio of 0.85 and a Beta of 1.62. Its Standard Deviation is 5.94 while LQD’s Treynor Ratio is 3.08. Furthermore, the fund has a Mean Return of 0.47 and a R-squared of 66.93.
VO’s Mean Return is 0.67 points higher than that of LQD and its R-squared is 25.29 points higher. With a Standard Deviation of 15.65, VO is slightly more volatile than LQD. The Alpha and Beta of VO are 3.23 points lower and 0.51 points lower than LQD’s Alpha and Beta.
Performance
Annual Returns
| Year | VO | LQD |
| 2020 | 18.22% | 11.14% |
| 2019 | 31.04% | 17.13% |
| 2018 | -9.21% | -3.76% |
| 2017 | 19.25% | 7.16% |
| 2016 | 11.23% | 5.97% |
| 2015 | -1.34% | -1.08% |
| 2014 | 13.76% | 8.57% |
| 2013 | 35.15% | -2.49% |
| 2012 | 15.98% | 11.68% |
| 2011 | -1.96% | 8.89% |
| 2010 | 25.57% | 9.15% |
VO had its best year in 2013 with an annual return of 35.15%. VO’s worst year over the past decade yielded -9.21% and occurred in 2018. In most years the Vanguard Mid-Cap Index Fund ETF Shares provided moderate returns such as in 2014, 2012, and 2020 where annual returns amounted to 13.76%, 15.98%, and 18.22% 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 |
| VO | $10,000 | $40,404 | 14.34% |
| LQD | $10,000 | $19,776 | 6.58% |
A $10,000 investment in VO would have resulted in a final balance of $40,404. This is a profit of $30,404 over 11 years and amounts to a compound annual growth rate (CAGR) of 14.34%.
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%.
VO’s CAGR is 7.76 percentage points higher than that of LQD and as a result, would have yielded $20,628 more on a $10,000 investment. Thus, VO outperformed LQD by 7.76% annually.
