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IJR vs. VMBS: What’s The Difference?

The iShares Core S&P Small-Cap ETF (IJR) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. IJR is a iShares Small Blend fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between IJR and VMBS? And which fund is better?

The expense ratio of IJR is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%). IJR also has a high exposure to the industrials sector while VMBS is mostly comprised of AAA bonds. Overall, IJR has provided higher returns than VMBS over the past ten years.

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

Introduction To Mutual Funds
Introduction To Mutual Funds
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Summary

IJRVMBS
NameiShares Core S&P Small-Cap ETFVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategorySmall BlendIntermediate Government
IssueriSharesVanguard
AUM68.64B16.61B
Avg. Return13.97%2.89%
Div. Yield0.96%1.23%
Expense Ratio0.06%0.05%

The iShares Core S&P Small-Cap ETF (IJR) is a Small Blend fund that is issued by iShares. It currently has 68.64B total assets under management and has yielded an average annual return of 13.97% over the past 10 years. The fund has a dividend yield of 0.96% with an expense ratio of 0.06%.

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%.

IJR’s dividend yield is 0.27% lower than that of VMBS (0.96% vs. 1.23%). Also, IJR yielded on average 11.07% more per year over the past decade (13.97% vs. 2.89%). The expense ratio of IJR is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%).

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Fund Composition

Holdings

IJR - Holdings

IJR HoldingsWeight
BlackRock Cash Funds Treasury SL Agency1.08%
GameStop Corp Class A0.86%
Omnicell Inc0.61%
Stamps.com Inc0.58%
Saia Inc0.57%
Power Integrations Inc0.57%
Exponent Inc0.54%
NeoGenomics Inc0.53%
Chart Industries Inc0.53%
Macy’s Inc0.51%

IJR’s Top Holdings are BlackRock Cash Funds Treasury SL Agency, GameStop Corp Class A, Omnicell Inc, Stamps.com Inc, and Saia Inc at 1.08%, 0.86%, 0.61%, 0.58%, and 0.57%.

Power Integrations Inc (0.57%), Exponent Inc (0.54%), and NeoGenomics Inc (0.53%) have a slightly smaller but still significant weight. Chart Industries Inc and Macy’s Inc are also represented in the IJR’s holdings at 0.53% and 0.51%.

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

IJRVMBS
Mean Return1.210.21
R-squared76.0365.78
Std. Deviation18.682.02
Alpha-3.70.37
Beta1.20.54
Sharpe Ratio0.740.94
Treynor Ratio10.773.47

The iShares Core S&P Small-Cap ETF (IJR) has a R-squared of 76.03 with a Alpha of -3.7 and a Sharpe Ratio of 0.74. Its Standard Deviation is 18.68 while IJR’s Treynor Ratio is 10.77. Furthermore, the fund has a Beta of 1.2 and a Mean Return of 1.21.

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

IJR’s Mean Return is 1.00 points higher than that of VMBS and its R-squared is 10.25 points higher. With a Standard Deviation of 18.68, IJR is slightly more volatile than VMBS. The Alpha and Beta of IJR are 4.07 points lower and 0.66 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

IJR vs. VMBS - Annual Returns

YearIJRVMBS
202011.24%3.77%
201922.79%6.17%
2018-8.43%0.87%
201713.2%2.37%
201626.49%1.43%
2015-2.0%1.43%
20145.67%5.81%
201341.36%-1.28%
201216.28%2.47%
20110.9%5.89%
201026.14%5.24%

IJR had its best year in 2013 with an annual return of 41.36%. IJR’s worst year over the past decade yielded -8.43% and occurred in 2018. In most years the iShares Core S&P Small-Cap ETF provided moderate returns such as in 2020, 2017, and 2012 where annual returns amounted to 11.24%, 13.2%, and 16.28% 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

IJR vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
IJR$10,000$30,75913.97%
VMBS$10,000$13,2652.89%

A $10,000 investment in IJR would have resulted in a final balance of $30,759. This is a profit of $20,759 over 10 years and amounts to a compound annual growth rate (CAGR) of 13.97%.

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%.

IJR’s CAGR is 11.07 percentage points higher than that of VMBS and as a result, would have yielded $17,494 more on a $10,000 investment. Thus, IJR outperformed VMBS by 11.07% annually.


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