The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. HYG is a iShares High Yield Bond fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between HYG and VMBS? And which fund is better?
The expense ratio of HYG is 0.43 percentage points higher than VMBS’s (0.48% vs. 0.05%). HYG is mostly comprised of BB bonds and VMBS has a high exposure to AAA bond. Overall, HYG has provided higher returns than VMBS over the past 10 years.
In this article, we’ll compare HYG vs. VMBS. We’ll look at portfolio growth and annual returns, as well as at their industry exposure and holdings. Moreover, I’ll also discuss HYG’s and VMBS’s risk metrics, fund composition, and performance and examine how these affect their overall returns.
|Name||iShares iBoxx $ High Yield Corporate Bond ETF||Vanguard Mortgage-Backed Securities Index Fund ETF Shares|
|Category||High Yield Bond||Intermediate Government|
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.
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%.
HYG’s dividend yield is 3.21% higher than that of VMBS (4.44% vs. 1.23%). Also, HYG yielded on average 3.52% more per year over the past decade (6.42% vs. 2.89%). The expense ratio of HYG is 0.43 percentage points higher than VMBS’s (0.48% vs. 0.05%).
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|HYG Bond Sectors||Weight|
HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
|VMBS Bond Sectors||Weight|
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.
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The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Beta of 0.48 with a Alpha of 3.58 and a Mean Return of 0.46. Its R-squared is 4.1 while HYG’s Standard Deviation is 6.96. Furthermore, the fund has a Sharpe Ratio of 0.7 and a Treynor Ratio of 10.01.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Standard Deviation of 2.02 with a Alpha of 0.37 and a Sharpe Ratio of 0.94. Its Treynor Ratio is 3.47 while VMBS’s R-squared is 65.78. Furthermore, the fund has a Beta of 0.54 and a Mean Return of 0.21.
HYG’s Mean Return is 0.25 points higher than that of VMBS and its R-squared is 61.68 points lower. With a Standard Deviation of 6.96, HYG is slightly more volatile than VMBS. The Alpha and Beta of HYG are 3.21 points higher and 0.06 points lower than VMBS’s Alpha and Beta.
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HYG had its best year in 2019 with an annual return of 14.23%. HYG’s worst year over the past decade yielded -5.55% and occurred in 2015. In most years the iShares iBoxx $ High Yield Corporate Bond ETF provided moderate returns such as in 2011, 2013, and 2017 where annual returns amounted to 5.89%, 5.9%, and 6.09% 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.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in HYG would have resulted in a final balance of $17,335. This is a profit of $7,335 over 10 years and amounts to a compound annual growth rate (CAGR) of 6.42%.
With a $10,000 investment in VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.
HYG’s CAGR is 3.52 percentage points higher than that of VMBS and as a result, would have yielded $4,070 more on a $10,000 investment. Thus, HYG outperformed VMBS by 3.52% annually.
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