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IAU vs. VMBS: What’s The Difference?

The iShares Gold Trust (IAU) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. IAU is a iShares N/A fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between IAU and VMBS? And which fund is better?

The expense ratio of IAU is 0.20 percentage points higher than VMBS’s (0.25% vs. 0.05%). IAU also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, IAU has provided higher returns than VMBS over the past 10 years.

In this article, we’ll compare IAU vs. VMBS. We’ll look at annual returns and fund composition, as well as at their portfolio growth and industry exposure. Moreover, I’ll also discuss IAU’s and VMBS’s holdings, performance, and risk metrics and examine how these affect their overall returns.

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Summary

IAUVMBS
NameiShares Gold TrustVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategoryN/AIntermediate Government
IssueriSharesVanguard
AUM28.61B16.61B
Avg. Return6.03%2.89%
Div. Yield0.0%1.23%
Expense Ratio0.25%0.05%

The iShares Gold Trust (IAU) is a N/A fund that is issued by iShares. It currently has 28.61B total assets under management and has yielded an average annual return of 6.03% over the past 10 years. The fund has a dividend yield of 0.0% with an expense ratio of 0.25%.

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%.

IAU’s dividend yield is 1.23% lower than that of VMBS (0.0% vs. 1.23%). Also, IAU yielded on average 3.14% more per year over the past decade (6.03% vs. 2.89%). The expense ratio of IAU is 0.20 percentage points higher than VMBS’s (0.25% vs. 0.05%).

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Fund Composition

Holdings

IAU - Holdings

IAU HoldingsWeight
Gold100.0%
N/A0%
N/A0%
N/A0%
N/A0%
N/A0%
N/A0%
N/A0%
N/A0%
N/A0%

IAU’s Top Holdings are Gold, N/A, N/A, N/A, and N/A at 100.0%, 0%, 0%, 0%, and 0%.

N/A (0%), N/A (0%), and N/A (0%) have a slightly smaller but still significant weight. N/A and N/A are also represented in the IAU’s holdings at 0% and 0%.

VMBS - Holdings

VMBS Bond SectorsWeight
AAA100.01%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%
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.

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Risk Analysis

IAUVMBS
Mean Return0.230.21
R-squared16.0365.78
Std. Deviation16.972.02
Alpha4.160.37
Beta0.480.54
Sharpe Ratio0.130.94
Treynor Ratio1.53.47

The iShares Gold Trust (IAU) has a Alpha of 4.16 with a Mean Return of 0.23 and a Treynor Ratio of 1.5. Its Sharpe Ratio is 0.13 while IAU’s Standard Deviation is 16.97. Furthermore, the fund has a Beta of 0.48 and a R-squared of 16.03.

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Standard Deviation of 2.02 with a Treynor Ratio of 3.47 and a Mean Return of 0.21. Its Sharpe Ratio is 0.94 while VMBS’s Beta is 0.54. Furthermore, the fund has a R-squared of 65.78 and a Alpha of 0.37.

IAU’s Mean Return is 0.02 points higher than that of VMBS and its R-squared is 49.75 points lower. With a Standard Deviation of 16.97, IAU is slightly more volatile than VMBS. The Alpha and Beta of IAU are 3.79 points higher and 0.06 points lower than VMBS’s Alpha and Beta.

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Performance

Annual Returns

IAU vs. VMBS - Annual Returns

YearIAUVMBS
202023.86%3.77%
201918.54%6.17%
2018-1.39%0.87%
201711.58%2.37%
20168.85%1.43%
2015-11.65%1.43%
2014-0.44%5.81%
2013-27.96%-1.28%
20128.37%2.47%
20118.66%5.89%
201027.93%5.24%

IAU had its best year in 2010 with an annual return of 27.93%. IAU’s worst year over the past decade yielded -27.96% and occurred in 2013. In most years the iShares Gold Trust provided moderate returns such as in 2012, 2011, and 2016 where annual returns amounted to 8.37%, 8.66%, and 8.85% 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

IAU vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
IAU$10,000$13,1216.03%
VMBS$10,000$13,2652.89%

A $10,000 investment in IAU would have resulted in a final balance of $13,121. This is a profit of $3,121 over 10 years and amounts to a compound annual growth rate (CAGR) of 6.03%.

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%.

IAU’s CAGR is 3.14 percentage points higher than that of VMBS and as a result, would have yielded $144 less on a $10,000 investment. Thus, IAU outperformed VMBS by 3.14% annually.


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