The Vanguard Total Stock Market Index Fund ETF Shares (VTI) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. VTI is a Vanguard Large Blend fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between VTI and LQD? And which fund is better?
The expense ratio of VTI is 0.11 percentage points lower than LQD’s (0.03% vs. 0.14%). VTI also has a high exposure to the technology sector while LQD is mostly comprised of BBB bonds. Overall, VTI has provided higher returns than LQD over the past ten years.
In this article, we’ll compare VTI vs. LQD. We’ll look at performance and risk metrics, as well as at their annual returns and holdings. Moreover, I’ll also discuss VTI’s and LQD’s portfolio growth, industry exposure, and fund composition and examine how these affect their overall returns.
Summary
| VTI | LQD | |
| Name | Vanguard Total Stock Market Index Fund ETF Shares | iShares iBoxx $ Investment Grade Corporate Bond ETF |
| Category | Large Blend | Corporate Bond |
| Issuer | Vanguard | iShares |
| AUM | 1.26T | 40.23B |
| Avg. Return | 14.70% | 6.58% |
| Div. Yield | 1.26% | 2.48% |
| Expense Ratio | 0.03% | 0.14% |
The Vanguard Total Stock Market Index Fund ETF Shares (VTI) is a Large Blend fund that is issued by Vanguard. It currently has 1.26T total assets under management and has yielded an average annual return of 14.70% over the past 10 years. The fund has a dividend yield of 1.26% with an expense ratio of 0.03%.
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%.
VTI’s dividend yield is 1.22% lower than that of LQD (1.26% vs. 2.48%). Also, VTI yielded on average 8.12% more per year over the past decade (14.70% vs. 6.58%). The expense ratio of VTI is 0.11 percentage points lower than LQD’s (0.03% vs. 0.14%).
Fund Composition
Holdings
| VTI Holdings | Weight |
| Apple Inc | 4.9% |
| Microsoft Corp | 4.6% |
| Amazon.com Inc | 3.33% |
| Facebook Inc Class A | 1.88% |
| Alphabet Inc Class A | 1.66% |
| Alphabet Inc Class C | 1.56% |
| Tesla Inc | 1.18% |
| Berkshire Hathaway Inc Class B | 1.09% |
| NVIDIA Corp | 1.07% |
| JPMorgan Chase & Co | 1.06% |
VTI’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, and Alphabet Inc Class A at 4.9%, 4.6%, 3.33%, 1.88%, and 1.66%.
Alphabet Inc Class C (1.56%), Tesla Inc (1.18%), and Berkshire Hathaway Inc Class B (1.09%) have a slightly smaller but still significant weight. NVIDIA Corp and JPMorgan Chase & Co are also represented in the VTI’s holdings at 1.07% and 1.06%.
| 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
| VTI | LQD | |
| Mean Return | 1.23 | 0.47 |
| R-squared | 99.24 | 66.93 |
| Std. Deviation | 14.15 | 5.94 |
| Alpha | -0.57 | 0.52 |
| Beta | 1.04 | 1.62 |
| Sharpe Ratio | 1 | 0.85 |
| Treynor Ratio | 13.58 | 3.08 |
The Vanguard Total Stock Market Index Fund ETF Shares (VTI) has a Mean Return of 1.23 with a Standard Deviation of 14.15 and a R-squared of 99.24. Its Sharpe Ratio is 1 while VTI’s Alpha is -0.57. Furthermore, the fund has a Beta of 1.04 and a Treynor Ratio of 13.58.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Alpha of 0.52 with a Mean Return of 0.47 and a R-squared of 66.93. Its Sharpe Ratio is 0.85 while LQD’s Beta is 1.62. Furthermore, the fund has a Standard Deviation of 5.94 and a Treynor Ratio of 3.08.
VTI’s Mean Return is 0.76 points higher than that of LQD and its R-squared is 32.31 points higher. With a Standard Deviation of 14.15, VTI is slightly more volatile than LQD. The Alpha and Beta of VTI are 1.09 points lower and 0.58 points lower than LQD’s Alpha and Beta.
Performance
Annual Returns
| Year | VTI | LQD |
| 2020 | 20.95% | 11.14% |
| 2019 | 30.8% | 17.13% |
| 2018 | -5.13% | -3.76% |
| 2017 | 21.16% | 7.16% |
| 2016 | 12.68% | 5.97% |
| 2015 | 0.4% | -1.08% |
| 2014 | 12.56% | 8.57% |
| 2013 | 33.51% | -2.49% |
| 2012 | 16.41% | 11.68% |
| 2011 | 1.06% | 8.89% |
| 2010 | 17.26% | 9.15% |
VTI had its best year in 2013 with an annual return of 33.51%. VTI’s worst year over the past decade yielded -5.13% and occurred in 2018. In most years the Vanguard Total Stock Market Index Fund ETF Shares provided moderate returns such as in 2016, 2012, and 2010 where annual returns amounted to 12.68%, 16.41%, and 17.26% 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 |
| VTI | $10,000 | $42,648 | 14.70% |
| LQD | $10,000 | $19,776 | 6.58% |
A $10,000 investment in VTI would have resulted in a final balance of $42,648. This is a profit of $32,648 over 11 years and amounts to a compound annual growth rate (CAGR) of 14.70%.
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%.
VTI’s CAGR is 8.12 percentage points higher than that of LQD and as a result, would have yielded $22,872 more on a $10,000 investment. Thus, VTI outperformed LQD by 8.12% annually.
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