The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between VWO and LQD? And which fund is better?
The expense ratio of VWO is 0.04 percentage points lower than LQD’s (0.1% vs. 0.14%). VWO also has a high exposure to the financial services sector while LQD is mostly comprised of BBB bonds. Overall, VWO has provided lower returns than LQD over the past ten years.
In this article, we’ll compare VWO vs. LQD. We’ll look at industry exposure and holdings, as well as at their portfolio growth and performance. Moreover, I’ll also discuss VWO’s and LQD’s annual returns, risk metrics, and fund composition and examine how these affect their overall returns.
Summary
| VWO | LQD | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | iShares iBoxx $ Investment Grade Corporate Bond ETF |
| Category | Diversified Emerging Mkts | Corporate Bond |
| Issuer | Vanguard | iShares |
| AUM | 117.28B | 40.23B |
| Avg. Return | 5.79% | 6.58% |
| Div. Yield | 1.98% | 2.48% |
| Expense Ratio | 0.1% | 0.14% |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) is a Diversified Emerging Mkts fund that is issued by Vanguard. It currently has 117.28B total assets under management and has yielded an average annual return of 5.79% over the past 10 years. The fund has a dividend yield of 1.98% with an expense ratio of 0.1%.
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%.
VWO’s dividend yield is 0.50% lower than that of LQD (1.98% vs. 2.48%). Also, VWO yielded on average 0.79% less per year over the past decade (5.79% vs. 6.58%). The expense ratio of VWO is 0.04 percentage points lower than LQD’s (0.1% vs. 0.14%).
Fund Composition
Holdings
| VWO Holdings | Weight |
| Tencent Holdings Ltd | 5.29% |
| Alibaba Group Holding Ltd Ordinary Shares | 4.73% |
| Taiwan Semiconductor Manufacturing Co Ltd | 4.58% |
| Meituan | 1.88% |
| Taiwan Semiconductor Manufacturing Co Ltd ADR | 1.7% |
| Reliance Industries Ltd Shs Dematerialised | 1.06% |
| Naspers Ltd Class N | 1.01% |
| Vale SA | 0.92% |
| Infosys Ltd | 0.91% |
| China Construction Bank Corp Class H | 0.84% |
VWO’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Taiwan Semiconductor Manufacturing Co Ltd, Meituan, and Taiwan Semiconductor Manufacturing Co Ltd ADR at 5.29%, 4.73%, 4.58%, 1.88%, and 1.7%.
Reliance Industries Ltd Shs Dematerialised (1.06%), Naspers Ltd Class N (1.01%), and Vale SA (0.92%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the VWO’s holdings at 0.91% and 0.84%.
| 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
| VWO | LQD | |
| Mean Return | 0.45 | 0.47 |
| R-squared | 81.69 | 66.93 |
| Std. Deviation | 17.64 | 5.94 |
| Alpha | -1.36 | 0.52 |
| Beta | 1.06 | 1.62 |
| Sharpe Ratio | 0.27 | 0.85 |
| Treynor Ratio | 3.14 | 3.08 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Sharpe Ratio of 0.27 with a Alpha of -1.36 and a Treynor Ratio of 3.14. Its Beta is 1.06 while VWO’s Standard Deviation is 17.64. Furthermore, the fund has a R-squared of 81.69 and a Mean Return of 0.45.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Standard Deviation of 5.94 with a Mean Return of 0.47 and a Alpha of 0.52. Its Treynor Ratio is 3.08 while LQD’s Beta is 1.62. Furthermore, the fund has a R-squared of 66.93 and a Sharpe Ratio of 0.85.
VWO’s Mean Return is 0.02 points lower than that of LQD and its R-squared is 14.76 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than LQD. The Alpha and Beta of VWO are 1.88 points lower and 0.56 points lower than LQD’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | LQD |
| 2020 | 15.32% | 11.14% |
| 2019 | 20.4% | 17.13% |
| 2018 | -14.57% | -3.76% |
| 2017 | 31.38% | 7.16% |
| 2016 | 11.75% | 5.97% |
| 2015 | -15.35% | -1.08% |
| 2014 | 0.6% | 8.57% |
| 2013 | -5.0% | -2.49% |
| 2012 | 18.84% | 11.68% |
| 2011 | -18.68% | 8.89% |
| 2010 | 18.99% | 9.15% |
VWO had its best year in 2017 with an annual return of 31.38%. VWO’s worst year over the past decade yielded -18.68% and occurred in 2011. In most years the Vanguard FTSE Emerging Markets Index Fund ETF Shares provided moderate returns such as in 2014, 2016, and 2020 where annual returns amounted to 0.6%, 11.75%, and 15.32% 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 |
| VWO | $10,000 | $16,200 | 5.79% |
| LQD | $10,000 | $19,776 | 6.58% |
A $10,000 investment in VWO would have resulted in a final balance of $16,200. This is a profit of $6,200 over 11 years and amounts to a compound annual growth rate (CAGR) of 5.79%.
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%.
VWO’s CAGR is 0.79 percentage points lower than that of LQD and as a result, would have yielded $3,576 less on a $10,000 investment. Thus, VWO performed worse than LQD by 0.79% annually.
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