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ITOT vs. VMBS: What’s The Difference?

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

The expense ratio of ITOT is 0.02 percentage points lower than VMBS’s (0.03% vs. 0.05%). ITOT also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, ITOT has provided higher returns than VMBS over the past ten years.

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

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Summary

ITOTVMBS
NameiShares Core S&P Total U.S. Stock Market ETFVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategoryLarge BlendIntermediate Government
IssueriSharesVanguard
AUM41.97B16.61B
Avg. Return14.59%2.89%
Div. Yield1.2%1.23%
Expense Ratio0.03%0.05%

The iShares Core S&P Total U.S. Stock Market ETF (ITOT) is a Large Blend fund that is issued by iShares. It currently has 41.97B total assets under management and has yielded an average annual return of 14.59% over the past 10 years. The fund has a dividend yield of 1.2% with an expense ratio of 0.03%.

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%.

ITOT’s dividend yield is 0.03% lower than that of VMBS (1.2% vs. 1.23%). Also, ITOT yielded on average 11.70% more per year over the past decade (14.59% vs. 2.89%). The expense ratio of ITOT is 0.02 percentage points lower than VMBS’s (0.03% vs. 0.05%).

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Fund Composition

Holdings

ITOT - Holdings

ITOT HoldingsWeight
Apple Inc5.07%
Microsoft Corp4.75%
Amazon.com Inc3.16%
Facebook Inc Class A1.89%
Alphabet Inc Class A1.79%
Alphabet Inc Class C1.71%
Tesla Inc1.17%
Berkshire Hathaway Inc Class B1.17%
NVIDIA Corp1.08%
JPMorgan Chase & Co1.02%

ITOT’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, and Alphabet Inc Class A at 5.07%, 4.75%, 3.16%, 1.89%, and 1.79%.

Alphabet Inc Class C (1.71%), Tesla Inc (1.17%), and Berkshire Hathaway Inc Class B (1.17%) have a slightly smaller but still significant weight. NVIDIA Corp and JPMorgan Chase & Co are also represented in the ITOT’s holdings at 1.08% and 1.02%.

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

ITOTVMBS
Mean Return1.270.21
R-squared99.465.78
Std. Deviation14.022.02
Alpha-0.540.37
Beta1.030.54
Sharpe Ratio1.040.94
Treynor Ratio14.133.47

The iShares Core S&P Total U.S. Stock Market ETF (ITOT) has a Treynor Ratio of 14.13 with a Standard Deviation of 14.02 and a Beta of 1.03. Its Mean Return is 1.27 while ITOT’s R-squared is 99.4. Furthermore, the fund has a Alpha of -0.54 and a Sharpe Ratio of 1.04.

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a R-squared of 65.78 with a Sharpe Ratio of 0.94 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.

ITOT’s Mean Return is 1.06 points higher than that of VMBS and its R-squared is 33.62 points higher. With a Standard Deviation of 14.02, ITOT is slightly more volatile than VMBS. The Alpha and Beta of ITOT are 0.91 points lower and 0.49 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

ITOT vs. VMBS - Annual Returns

YearITOTVMBS
202020.75%3.77%
201930.87%6.17%
2018-5.27%0.87%
201721.23%2.37%
201612.59%1.43%
20150.96%1.43%
201413.01%5.81%
201332.67%-1.28%
201215.98%2.47%
20111.55%5.89%
201016.15%5.24%

ITOT had its best year in 2013 with an annual return of 32.67%. ITOT’s worst year over the past decade yielded -5.27% and occurred in 2018. In most years the iShares Core S&P Total U.S. Stock Market ETF provided moderate returns such as in 2014, 2012, and 2010 where annual returns amounted to 13.01%, 15.98%, and 16.15% 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

ITOT vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
ITOT$10,000$36,42714.59%
VMBS$10,000$13,2652.89%

A $10,000 investment in ITOT would have resulted in a final balance of $36,427. This is a profit of $26,427 over 10 years and amounts to a compound annual growth rate (CAGR) of 14.59%.

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%.

ITOT’s CAGR is 11.70 percentage points higher than that of VMBS and as a result, would have yielded $23,162 more on a $10,000 investment. Thus, ITOT outperformed VMBS by 11.70% annually.


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