XLK vs. LQD: What’s The Difference?

The Technology Select Sector SPDR Fund (XLK) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. XLK is a SPDR State Street Global Advisors Technology fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between XLK and LQD? And which fund is better?

The expense ratio of XLK is 0.02 percentage points lower than LQD’s (0.12% vs. 0.14%). XLK also has a high exposure to the technology sector while LQD is mostly comprised of BBB bonds. Overall, XLK has provided higher returns than LQD over the past ten years.

In this article, we’ll compare XLK vs. LQD. We’ll look at industry exposure and risk metrics, as well as at their annual returns and performance. Moreover, I’ll also discuss XLK’s and LQD’s holdings, fund composition, and portfolio growth and examine how these affect their overall returns.

Summary

XLK LQD
Name Technology Select Sector SPDR Fund iShares iBoxx $ Investment Grade Corporate Bond ETF
Category Technology Corporate Bond
Issuer SPDR State Street Global Advisors iShares
AUM 42.3B 40.23B
Avg. Return 20.02% 6.58%
Div. Yield 0.73% 2.48%
Expense Ratio 0.12% 0.14%

The Technology Select Sector SPDR Fund (XLK) is a Technology fund that is issued by SPDR State Street Global Advisors. It currently has 42.3B total assets under management and has yielded an average annual return of 20.02% over the past 10 years. The fund has a dividend yield of 0.73% 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%.

XLK’s dividend yield is 1.75% lower than that of LQD (0.73% vs. 2.48%). Also, XLK yielded on average 13.45% more per year over the past decade (20.02% vs. 6.58%). The expense ratio of XLK is 0.02 percentage points lower than LQD’s (0.12% vs. 0.14%).

Fund Composition

Holdings

XLK - Holdings

XLK Holdings Weight
Apple Inc 21.45%
Microsoft Corp 20.37%
NVIDIA Corp 4.98%
Visa Inc Class A 3.95%
PayPal Holdings Inc 3.42%
Mastercard Inc A 3.19%
Adobe Inc 2.8%
Salesforce.com Inc 2.26%
Intel Corp 2.26%
Cisco Systems Inc 2.23%

XLK’s Top Holdings are Apple Inc, Microsoft Corp, NVIDIA Corp, Visa Inc Class A, and PayPal Holdings Inc at 21.45%, 20.37%, 4.98%, 3.95%, and 3.42%.

Mastercard Inc A (3.19%), Adobe Inc (2.8%), and Salesforce.com Inc (2.26%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the XLK’s holdings at 2.26% and 2.23%.

LQD - Holdings

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

XLK LQD
Mean Return 1.7 0.47
R-squared 73.56 66.93
Std. Deviation 15.58 5.94
Alpha 10.43 0.52
Beta 0.95 1.62
Sharpe Ratio 1.27 0.85
Treynor Ratio 21.44 3.08

The Technology Select Sector SPDR Fund (XLK) has a Beta of 0.95 with a Mean Return of 1.7 and a R-squared of 73.56. Its Treynor Ratio is 21.44 while XLK’s Sharpe Ratio is 1.27. Furthermore, the fund has a Standard Deviation of 15.58 and a Alpha of 10.43.

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Treynor Ratio of 3.08 with a Mean Return of 0.47 and a Sharpe Ratio of 0.85. Its Alpha is 0.52 while LQD’s Standard Deviation is 5.94. Furthermore, the fund has a R-squared of 66.93 and a Beta of 1.62.

XLK’s Mean Return is 1.23 points higher than that of LQD and its R-squared is 6.63 points higher. With a Standard Deviation of 15.58, XLK is slightly more volatile than LQD. The Alpha and Beta of XLK are 9.91 points higher and 0.67 points lower than LQD’s Alpha and Beta.

Performance

Annual Returns

XLK vs. LQD - Annual Returns

Year XLK LQD
2020 43.67% 11.14%
2019 49.97% 17.13%
2018 -1.56% -3.76%
2017 34.27% 7.16%
2016 14.81% 5.97%
2015 5.62% -1.08%
2014 17.75% 8.57%
2013 25.98% -2.49%
2012 15.47% 11.68%
2011 2.69% 8.89%
2010 11.6% 9.15%

XLK had its best year in 2019 with an annual return of 49.97%. XLK’s worst year over the past decade yielded -1.56% and occurred in 2018. In most years the Technology Select Sector SPDR Fund provided moderate returns such as in 2016, 2012, and 2014 where annual returns amounted to 14.81%, 15.47%, and 17.75% 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

XLK vs. LQD - Portfolio Growth

Fund Initial Balance Final Balance CAGR
XLK $10,000 $67,790 20.02%
LQD $10,000 $19,776 6.58%

A $10,000 investment in XLK would have resulted in a final balance of $67,790. This is a profit of $57,790 over 11 years and amounts to a compound annual growth rate (CAGR) of 20.02%.

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%.

XLK’s CAGR is 13.45 percentage points higher than that of LQD and as a result, would have yielded $48,014 more on a $10,000 investment. Thus, XLK outperformed LQD by 13.45% annually.


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