The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. VYM is a Vanguard Large Value fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between VYM and LQD? And which fund is better?
The expense ratio of VYM is 0.08 percentage points lower than LQD’s (0.06% vs. 0.14%). VYM also has a high exposure to the financial services sector while LQD is mostly comprised of BBB bonds. Overall, VYM has provided higher returns than LQD over the past ten years.
In this article, we’ll compare VYM vs. LQD. We’ll look at industry exposure and fund composition, as well as at their annual returns and performance. Moreover, I’ll also discuss VYM’s and LQD’s risk metrics, holdings, and portfolio growth and examine how these affect their overall returns.
|Name||Vanguard High Dividend Yield Index Fund ETF Shares||iShares iBoxx $ Investment Grade Corporate Bond ETF|
|Category||Large Value||Corporate Bond|
The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) is a Large Value fund that is issued by Vanguard. It currently has 48.5B total assets under management and has yielded an average annual return of 12.20% over the past 10 years. The fund has a dividend yield of 2.79% with an expense ratio of 0.06%.
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%.
VYM’s dividend yield is 0.31% higher than that of LQD (2.79% vs. 2.48%). Also, VYM yielded on average 5.62% more per year over the past decade (12.20% vs. 6.58%). The expense ratio of VYM is 0.08 percentage points lower than LQD’s (0.06% vs. 0.14%).
|JPMorgan Chase & Co||3.53%|
|Johnson & Johnson||3.28%|
|The Home Depot Inc||2.59%|
|Procter & Gamble Co||2.48%|
|Bank of America Corp||2.35%|
|Exxon Mobil Corp||2.02%|
|Comcast Corp Class A||1.96%|
|Verizon Communications Inc||1.75%|
|Cisco Systems Inc||1.69%|
VYM’s Top Holdings are JPMorgan Chase & Co, Johnson & Johnson, The Home Depot Inc, Procter & Gamble Co, and Bank of America Corp at 3.53%, 3.28%, 2.59%, 2.48%, and 2.35%.
Exxon Mobil Corp (2.02%), Comcast Corp Class A (1.96%), and Verizon Communications Inc (1.75%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the VYM’s holdings at 1.71% and 1.69%.
|LQD Bond Sectors||Weight|
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.
The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) has a Standard Deviation of 12.69 with a Beta of 0.88 and a Mean Return of 1.04. Its Alpha is -0.7 while VYM’s Treynor Ratio is 13.24. Furthermore, the fund has a R-squared of 88.88 and a Sharpe Ratio of 0.93.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Sharpe Ratio of 0.85 with a Beta of 1.62 and a Alpha of 0.52. Its R-squared is 66.93 while LQD’s Mean Return is 0.47. Furthermore, the fund has a Standard Deviation of 5.94 and a Treynor Ratio of 3.08.
VYM’s Mean Return is 0.57 points higher than that of LQD and its R-squared is 21.95 points higher. With a Standard Deviation of 12.69, VYM is slightly more volatile than LQD. The Alpha and Beta of VYM are 1.22 points lower and 0.74 points lower than LQD’s Alpha and Beta.
VYM had its best year in 2013 with an annual return of 30.26%. VYM’s worst year over the past decade yielded -5.87% and occurred in 2018. In most years the Vanguard High Dividend Yield Index Fund ETF Shares provided moderate returns such as in 2012, 2014, and 2010 where annual returns amounted to 12.68%, 13.47%, and 14.17% 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.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in VYM would have resulted in a final balance of $33,914. This is a profit of $23,914 over 11 years and amounts to a compound annual growth rate (CAGR) of 12.20%.
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%.
VYM’s CAGR is 5.62 percentage points higher than that of LQD and as a result, would have yielded $14,138 more on a $10,000 investment. Thus, VYM outperformed LQD by 5.62% annually.
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