Vanguard Long-Term Treasury ETF vs iShares Corporate Bond ETF: Which Bond Fund Offers the Best Combination of Safety and Investment Returns?

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD 0.20%) offers exposure to high-quality corporate credit risk, whereas the Vanguard Long-Term Treasury ETF (VGLT 0.26%) prioritizes long-dated government debt with lower annual fees.

Both funds are designed to provide steady income and act as stabilizers within a diversified portfolio. While the iShares fund focuses on the credit-worthiness of top-tier corporations, the Vanguard ETF serves as a pure-play on interest-rate sensitivity and the safety of U.S. government obligations. With assets under management (AUM) of $34.8 billion and $14.8 billion, respectively, both funds offer deep liquidity for long-term allocators and active traders alike.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard ETF is the more affordable option, with a 0.03% expense ratio, saving investors 0.11 percentage points annually compared with LQD. Despite their different credit focuses, both funds currently offer the same trailing 12-month distribution yield of 4.60%.

Performance & risk comparison

What’s inside

Vanguard Long-Term Treasury ETF primarily invests in U.S. government bonds with maturities between 10 and 25 years. It manages 99 holdings, with its largest positions at 2.20% and 2.19%. This fund was also launched in 2009. Vanguard Long-Term Treasury ETF has paid $2.52 per share over the trailing 12 months, which on its recent ~$54.69 share price works out to a 4.60% yield.

The iShares iBoxx $ Investment Grade Corporate Bond ETF focuses on high-quality corporate debt issued and traded in U.S. dollars. Like its counterpart, the fund owns just bonds, with 3,085 positions, with no single position exceeding 1.25% of total assets. This iShares fund was launched in 2002. iShares iBoxx $ Investment Grade Corporate Bond ETF has paid $4.94 per share over the trailing 12 months, which, on its recent ~$108.64 share price, works out to a 4.60% yield.

Which fund is the better buy?

The iShares iBoxx $ Investment Grade Corporate Bond ETF —LQD — has its holdings concentrated in A and BBB-rated corporate bonds, with more than 88% of its holdings in that credit range. The iShares offering has about 26% of its portfolio in 20 years-plus maturities, with 16% in the 10- to 20-year range, 27% in 7- to 15-year maturities, and the balance, about 31%, under five years.

For those who care only about bonds with better performance, the iShares LQD is the winner. LQD beats VGLT in the 3-yr, 5-year, and 10-year time frames. LQD returned an annualized 2.67% over the past decade, while the Vanguard fund had negative 1.37% over 10 years.

The Vanguard Long-Term Treasury ETF — VGLT — provides the safest bond investment in the world today, given faith that the federal government will always meet its debt obligations. Its poor performance has been because of rising interest rates, which have caused the face value of existing bonds in its portfolio to decline. But LQD faced the same issue with its corporate bond holdings. Clearly, the ETF structure allows it much more flexibility in finding good investments. Recognizing that corporate bonds inherently carry more risk than Treasuries, LQD still provides defensive bond access, some income, and decent returns. It’s the ETF to go with here.

For more guidance on ETF investing, check out the full guide at this link.