The iShares U.S. Treasury Bond ETF (GOVT) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. GOVT is a iShares Intermediate Government fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between GOVT and VMBS? And which fund is better?
GOVT and VMBS have the same expense ratio: 0.05%. GOVT is mostly comprised of AAA bonds and VMBS has a high exposure to AAA bond. Overall, GOVT has provided lower returns than VMBS over the past 8 years.
In this article, we’ll compare GOVT vs. VMBS. We’ll look at portfolio growth and fund composition, as well as at their annual returns and holdings. Moreover, I’ll also discuss GOVT’s and VMBS’s industry exposure, risk metrics, and performance and examine how these affect their overall returns.
Summary
| GOVT | VMBS | |
| Name | iShares U.S. Treasury Bond ETF | Vanguard Mortgage-Backed Securities Index Fund ETF Shares |
| Category | Intermediate Government | Intermediate Government |
| Issuer | iShares | Vanguard |
| AUM | 17.07B | 16.61B |
| Avg. Return | 2.67% | 2.89% |
| Div. Yield | 1.0% | 1.23% |
| Expense Ratio | 0.05% | 0.05% |
The iShares U.S. Treasury Bond ETF (GOVT) is a Intermediate Government fund that is issued by iShares. It currently has 17.07B total assets under management and has yielded an average annual return of 2.67% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.05%.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.
GOVT’s dividend yield is 0.23% lower than that of VMBS (1.0% vs. 1.23%). Also, GOVT yielded on average 0.22% less per year over the past decade (2.67% vs. 2.89%). GOVT and VMBS have the same expense ratio: 0.05%.
Fund Composition
Holdings
| GOVT Bond Sectors | Weight |
| AAA | 100.0% |
| Others | 0.0% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
GOVT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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.
| VMBS Bond Sectors | Weight |
| AAA | 100.01% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
| Others | -0.01% |
VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
Risk Analysis
| GOVT | VMBS | |
| Mean Return | 0 | 0.21 |
| R-squared | 0 | 65.78 |
| Std. Deviation | 0 | 2.02 |
| Alpha | 0 | 0.37 |
| Beta | 0 | 0.54 |
| Sharpe Ratio | 0 | 0.94 |
| Treynor Ratio | 0 | 3.47 |
The iShares U.S. Treasury Bond ETF (GOVT) has a Sharpe Ratio of 0 with a Standard Deviation of 0 and a R-squared of 0. Its Treynor Ratio is 0 while GOVT’s Alpha is 0. Furthermore, the fund has a Mean Return of 0 and a Beta of 0.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Sharpe Ratio of 0.94 with a R-squared of 65.78 and a Standard Deviation of 2.02. Its Mean Return is 0.21 while VMBS’s Treynor Ratio is 3.47. Furthermore, the fund has a Beta of 0.54 and a Alpha of 0.37.
GOVT’s Mean Return is 0.21 points lower than that of VMBS and its R-squared is 65.78 points lower. With a Standard Deviation of 0, GOVT is slightly less volatile than VMBS. The Alpha and Beta of GOVT are 0.37 points lower and 0.54 points lower than VMBS’s Alpha and Beta.
Performance
Annual Returns
| Year | GOVT | VMBS |
| 2020 | 7.92% | 3.77% |
| 2019 | 6.71% | 6.17% |
| 2018 | 0.74% | 0.87% |
| 2017 | 2.19% | 2.37% |
| 2016 | 0.92% | 1.43% |
| 2015 | 0.76% | 1.43% |
| 2014 | 4.99% | 5.81% |
| 2013 | -2.84% | -1.28% |
| 2012 | 0.0% | 2.47% |
| 2011 | 0.0% | 5.89% |
| 2010 | 0.0% | 5.24% |
GOVT had its best year in 2020 with an annual return of 7.92%. GOVT’s worst year over the past decade yielded -2.84% and occurred in 2013. In most years the iShares U.S. Treasury Bond ETF provided moderate returns such as in 2018, 2015, and 2016 where annual returns amounted to 0.74%, 0.76%, and 0.92% respectively.
The year 2019 was the strongest year for VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| GOVT | $10,000 | $12,297 | 2.67% |
| VMBS | $10,000 | $12,225 | 2.89% |
A $10,000 investment in GOVT would have resulted in a final balance of $12,297. This is a profit of $2,297 over 8 years and amounts to a compound annual growth rate (CAGR) of 2.67%.
With a $10,000 investment in VMBS, the end total would have been $12,225. This equates to a $2,225 profit over 8 years and a compound annual growth rate (CAGR) of 2.89%.
GOVT’s CAGR is 0.22 percentage points lower than that of VMBS and as a result, would have yielded $72 more on a $10,000 investment. Thus, GOVT performed worse than VMBS by 0.22% annually.
Current recommendations:
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.
I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
