The Vanguard Total Bond Market Index Fund ETF Shares (BND) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. BND is a Vanguard Intermediate-Term Bond fund and SHY is a iShares Short Government fund. So, what’s the difference between BND and SHY? And which fund is better?
The expense ratio of BND is 0.12 percentage points lower than SHY’s (0.03% vs. 0.15%). BND is mostly comprised of AAA bonds and SHY has a high exposure to AAA bond. Overall, BND has provided higher returns than SHY over the past ten years.
In this article, we’ll compare BND vs. SHY. We’ll look at annual returns and industry exposure, as well as at their fund composition and holdings. Moreover, I’ll also discuss BND’s and SHY’s portfolio growth, performance, and risk metrics and examine how these affect their overall returns.
Summary
| BND | SHY | |
| Name | Vanguard Total Bond Market Index Fund ETF Shares | iShares 1-3 Year Treasury Bond ETF |
| Category | Intermediate-Term Bond | Short Government |
| Issuer | Vanguard | iShares |
| AUM | 312.15B | 19.51B |
| Avg. Return | 4.09% | 1.27% |
| Div. Yield | 2.02% | 0.46% |
| Expense Ratio | 0.03% | 0.15% |
The Vanguard Total Bond Market Index Fund ETF Shares (BND) is a Intermediate-Term Bond fund that is issued by Vanguard. It currently has 312.15B total assets under management and has yielded an average annual return of 4.09% over the past 10 years. The fund has a dividend yield of 2.02% with an expense ratio of 0.03%.
The iShares 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.
BND’s dividend yield is 1.56% higher than that of SHY (2.02% vs. 0.46%). Also, BND yielded on average 2.82% more per year over the past decade (4.09% vs. 1.27%). The expense ratio of BND is 0.12 percentage points lower than SHY’s (0.03% vs. 0.15%).
Fund Composition
Holdings
| BND Bond Sectors | Weight |
| AAA | 68.72% |
| BBB | 16.17% |
| A | 11.87% |
| AA | 3.34% |
| Below B | 0.01% |
| B | 0.0% |
| BB | 0.0% |
| US Government | 0.0% |
| Others | -0.11% |
BND’s Top Bond Sectors are ratings of AAA, BBB, A, AA, and Below B at 68.72%, 16.17%, 11.87%, 3.34%, and 0.01%. The fund is less weighted towards B (0.0%), BB (0.0%), and US Government (0.0%) rated bonds.
| SHY Bond Sectors | Weight |
| AAA | 99.67% |
| Others | 0.33% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.
Risk Analysis
| BND | SHY | |
| Mean Return | 0.28 | 0.09 |
| R-squared | 99.34 | 39.11 |
| Std. Deviation | 3.14 | 0.89 |
| Alpha | -0.14 | -0.03 |
| Beta | 1.04 | 0.18 |
| Sharpe Ratio | 0.88 | 0.54 |
| Treynor Ratio | 2.64 | 2.6 |
The Vanguard Total Bond Market Index Fund ETF Shares (BND) has a R-squared of 99.34 with a Beta of 1.04 and a Alpha of -0.14. Its Standard Deviation is 3.14 while BND’s Treynor Ratio is 2.64. Furthermore, the fund has a Sharpe Ratio of 0.88 and a Mean Return of 0.28.
The iShares 1-3 Year Treasury Bond ETF (SHY) has a R-squared of 39.11 with a Beta of 0.18 and a Standard Deviation of 0.89. Its Treynor Ratio is 2.6 while SHY’s Sharpe Ratio is 0.54. Furthermore, the fund has a Alpha of -0.03 and a Mean Return of 0.09.
BND’s Mean Return is 0.19 points higher than that of SHY and its R-squared is 60.23 points higher. With a Standard Deviation of 3.14, BND is slightly more volatile than SHY. The Alpha and Beta of BND are 0.11 points lower and 0.86 points higher than SHY’s Alpha and Beta.
Performance
Annual Returns
| Year | BND | SHY |
| 2020 | 7.71% | 3.01% |
| 2019 | 8.71% | 3.42% |
| 2018 | -0.04% | 1.45% |
| 2017 | 3.62% | 0.27% |
| 2016 | 2.57% | 0.75% |
| 2015 | 0.39% | 0.43% |
| 2014 | 5.96% | 0.48% |
| 2013 | -2.14% | 0.23% |
| 2012 | 4.04% | 0.31% |
| 2011 | 7.71% | 1.43% |
| 2010 | 6.51% | 2.23% |
BND had its best year in 2019 with an annual return of 8.71%. BND’s worst year over the past decade yielded -2.14% and occurred in 2013. In most years the Vanguard Total Bond Market Index Fund ETF Shares provided moderate returns such as in 2017, 2012, and 2014 where annual returns amounted to 3.62%, 4.04%, and 5.96% respectively.
The year 2019 was the strongest year for SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| BND | $10,000 | $15,456 | 4.09% |
| SHY | $10,000 | $11,486 | 1.27% |
A $10,000 investment in BND would have resulted in a final balance of $15,456. This is a profit of $5,456 over 11 years and amounts to a compound annual growth rate (CAGR) of 4.09%.
With a $10,000 investment in SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.
BND’s CAGR is 2.82 percentage points higher than that of SHY and as a result, would have yielded $3,970 more on a $10,000 investment. Thus, BND outperformed SHY by 2.82% annually.
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