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IUSB vs. VMBS: What’s The Difference?

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

The expense ratio of IUSB is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%). IUSB is mostly comprised of AAA bonds and VMBS has a high exposure to AAA bond. Overall, IUSB has provided higher returns than VMBS over the past 6 years.

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

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Summary

IUSBVMBS
NameiShares Core Total USD Bond Market ETFVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategoryN/AIntermediate Government
IssueriSharesVanguard
AUM14.49B16.61B
Avg. Return4.13%2.89%
Div. Yield2.1%1.23%
Expense Ratio0.06%0.05%

The iShares Core Total USD Bond Market ETF (IUSB) is a N/A fund that is issued by iShares. It currently has 14.49B total assets under management and has yielded an average annual return of 4.13% over the past 10 years. The fund has a dividend yield of 2.1% 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%.

IUSB’s dividend yield is 0.87% higher than that of VMBS (2.1% vs. 1.23%). Also, IUSB yielded on average 1.24% more per year over the past decade (4.13% vs. 2.89%). The expense ratio of IUSB is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%).

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Fund Composition

Holdings

IUSB - Holdings

IUSB Bond SectorsWeight
AAA58.32%
BBB16.98%
A12.27%
BB4.33%
AA3.36%
B2.8%
Others1.01%
Below B0.92%
US Government0.0%

IUSB’s Top Bond Sectors are ratings of AAA, BBB, A, BB, and AA at 58.32%, 16.98%, 12.27%, 4.33%, and 3.36%. The fund is less weighted towards B (2.8%), Others (1.01%), and Below B (0.92%) rated bonds.

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

IUSBVMBS
Mean Return00.21
R-squared065.78
Std. Deviation02.02
Alpha00.37
Beta00.54
Sharpe Ratio00.94
Treynor Ratio03.47

The iShares Core Total USD Bond Market ETF (IUSB) has a Treynor Ratio of 0 with a Mean Return of 0 and a Standard Deviation of 0. Its R-squared is 0 while IUSB’s Sharpe Ratio is 0. Furthermore, the fund has a Alpha of 0 and a Beta of 0.

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

IUSB’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, IUSB is slightly less volatile than VMBS. The Alpha and Beta of IUSB are 0.37 points lower and 0.54 points lower than VMBS’s Alpha and Beta.

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Performance

Annual Returns

IUSB vs. VMBS - Annual Returns

YearIUSBVMBS
20207.59%3.77%
20199.26%6.17%
2018-0.38%0.87%
20174.06%2.37%
20163.78%1.43%
20150.46%1.43%
20140.0%5.81%
20130.0%-1.28%
20120.0%2.47%
20110.0%5.89%
20100.0%5.24%

IUSB had its best year in 2019 with an annual return of 9.26%. IUSB’s worst year over the past decade yielded -0.38% and occurred in 2018. In most years the iShares Core Total USD Bond Market ETF provided moderate returns such as in 2011, 2010, and 2015 where annual returns amounted to 0.0%, 0.0%, and 0.46% 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

IUSB vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
IUSB$10,000$12,7044.13%
VMBS$10,000$11,7042.89%

A $10,000 investment in IUSB would have resulted in a final balance of $12,704. This is a profit of $2,704 over 6 years and amounts to a compound annual growth rate (CAGR) of 4.13%.

With a $10,000 investment in VMBS, the end total would have been $11,704. This equates to a $1,704 profit over 6 years and a compound annual growth rate (CAGR) of 2.89%.

IUSB’s CAGR is 1.24 percentage points higher than that of VMBS and as a result, would have yielded $1,000 more on a $10,000 investment. Thus, IUSB outperformed VMBS by 1.24% annually.


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