The Vanguard Long-Term Corporate Bond ETF (VCLT) boasts a lower expense ratio and higher yield than the iShares iBoxx Investment Grade Corporate Bond ETF (LQD). However, LQD has outperformed VCLT over the past year and has experienced a smaller five-year drawdown. VCLT holds fewer bonds with sector tilts and an ESG screen, while LQD is much broader.

LQD and VCLT differ significantly in cost, yield, sector exposure, and risk profile. LQD offers broader diversification with over 3,000 holdings, while VCLT focuses on higher yield and an ESG screen with just 257 bonds. VCLT charges a lower expense ratio of 0.03% compared to LQD’s 0.14% and currently delivers a higher yield of 5.5% versus LQD’s 4.4%.

VCLT primarily invests in high-quality corporate bonds with maturities between 10 and 25 years, focusing on current income and applying an ESG screen. Its top sector exposures include cash and others (15%), healthcare (14%), and financial services (13%). In contrast, LQD is broader with a concentration in cash and equivalents, providing a more comprehensive slice of the investment-grade corporate bond universe.

When it comes to investing in LQD or VCLT, the decision hinges on intent. LQD offers steady corporate bond exposure with liquidity and balance, while VCLT is a higher-yielding position with a clear view on long-term rates, embedding more rate risk. Investors should choose based on how much rate risk they want in their bond allocation rather than credit quality alone.

Read more at Yahoo Finance: Choosing Between Stability and Long-Rate Exposure