IWD vs. VNQ: What’s The Difference?

The iShares Russell 1000 Value ETF (IWD) and the Vanguard Real Estate Index Fund ETF Shares (VNQ) are both among the Top 100 ETFs. IWD is a iShares Large Value fund and VNQ is a Vanguard Real Estate fund. So, what’s the difference between IWD and VNQ? And which fund is better?

The expense ratio of IWD is 0.07 percentage points higher than VNQ’s (0.19% vs. 0.12%). IWD also has a higher exposure to the financial services sector and a lower standard deviation. Overall, IWD has provided higher returns than VNQ over the past ten years.

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

Summary

IWD VNQ
Name iShares Russell 1000 Value ETF Vanguard Real Estate Index Fund ETF Shares
Category Large Value Real Estate
Issuer iShares Vanguard
AUM 54.1B 77.34B
Avg. Return 11.40% 11.05%
Div. Yield 1.57% 2.34%
Expense Ratio 0.19% 0.12%

The iShares Russell 1000 Value ETF (IWD) is a Large Value fund that is issued by iShares. It currently has 54.1B total assets under management and has yielded an average annual return of 11.40% over the past 10 years. The fund has a dividend yield of 1.57% with an expense ratio of 0.19%.

The Vanguard Real Estate Index Fund ETF Shares (VNQ) is a Real Estate fund that is issued by Vanguard. It currently has 77.34B total assets under management and has yielded an average annual return of 11.05% over the past 10 years. The fund has a dividend yield of 2.34% with an expense ratio of 0.12%.

IWD’s dividend yield is 0.77% lower than that of VNQ (1.57% vs. 2.34%). Also, IWD yielded on average 0.35% more per year over the past decade (11.40% vs. 11.05%). The expense ratio of IWD is 0.07 percentage points higher than VNQ’s (0.19% vs. 0.12%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

Fund Composition

Industry Exposure

IWD vs. VNQ - Industry Exposure

IWD VNQ
Technology 10.28% 0.0%
Industrials 11.77% 0.0%
Energy 4.76% 0.0%
Communication Services 8.67% 0.0%
Utilities 4.88% 0.0%
Healthcare 17.78% 0.0%
Consumer Defensive 7.76% 0.0%
Real Estate 4.94% 100.0%
Financial Services 20.43% 0.0%
Consumer Cyclical 5.62% 0.0%
Basic Materials 3.1% 0.0%

The iShares Russell 1000 Value ETF (IWD) has the most exposure to the Financial Services sector at 20.43%. This is followed by Healthcare and Industrials at 17.78% and 11.77% respectively. Energy (4.76%), Utilities (4.88%), and Real Estate (4.94%) only make up 14.58% of the fund’s total assets.

IWD’s mid-section with moderate exposure is comprised of Consumer Cyclical, Consumer Defensive, Communication Services, Technology, and Industrials stocks at 5.62%, 7.76%, 8.67%, 10.28%, and 11.77%.

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has the most exposure to the Real Estate sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Financial Services (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

VNQ’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

IWD is 20.43% more exposed to the Financial Services sector than VNQ (20.43% vs 0.0%). IWD’s exposure to Healthcare and Industrials stocks is 17.78% higher and 11.77% higher respectively (17.78% vs. 0.0% and 11.77% vs. 0.0%). In total, Energy, Utilities, and Real Estate also make up 85.42% less of the fund’s holdings compared to VNQ (14.58% vs. 100.00%).

Holdings

IWD - Holdings

IWD Holdings Weight
Berkshire Hathaway Inc Class B 2.58%
JPMorgan Chase & Co 2.25%
Johnson & Johnson 2.24%
UnitedHealth Group Inc 1.78%
Procter & Gamble Co 1.71%
The Walt Disney Co 1.5%
Bank of America Corp 1.43%
Comcast Corp Class A 1.33%
Exxon Mobil Corp 1.2%
Pfizer Inc 1.18%

IWD’s Top Holdings are Berkshire Hathaway Inc Class B, JPMorgan Chase & Co, Johnson & Johnson, UnitedHealth Group Inc, and Procter & Gamble Co at 2.58%, 2.25%, 2.24%, 1.78%, and 1.71%.

The Walt Disney Co (1.5%), Bank of America Corp (1.43%), and Comcast Corp Class A (1.33%) have a slightly smaller but still significant weight. Exxon Mobil Corp and Pfizer Inc are also represented in the IWD’s holdings at 1.2% and 1.18%.

VNQ - Holdings

VNQ Holdings Weight
Vanguard Real Estate II Index 11.62%
American Tower Corp 7.24%
Prologis Inc 5.33%
Crown Castle International Corp 5.01%
Equinix Inc 4.3%
Public Storage 2.85%
Simon Property Group Inc 2.52%
Digital Realty Trust Inc 2.49%
SBA Communications Corp 2.1%
Welltower Inc 2.09%

VNQ’s Top Holdings are Vanguard Real Estate II Index, American Tower Corp, Prologis Inc, Crown Castle International Corp, and Equinix Inc at 11.62%, 7.24%, 5.33%, 5.01%, and 4.3%.

Public Storage (2.85%), Simon Property Group Inc (2.52%), and Digital Realty Trust Inc (2.49%) have a slightly smaller but still significant weight. SBA Communications Corp and Welltower Inc are also represented in the VNQ’s holdings at 2.1% and 2.09%.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Risk Analysis

IWD VNQ
Mean Return 1.03 0.89
R-squared 92.38 44.4
Std. Deviation 14.35 16.13
Alpha -3.23 2.47
Beta 1.02 0.76
Sharpe Ratio 0.81 0.62
Treynor Ratio 11.06 11.9

The iShares Russell 1000 Value ETF (IWD) has a Mean Return of 1.03 with a Beta of 1.02 and a Alpha of -3.23. Its Standard Deviation is 14.35 while IWD’s Treynor Ratio is 11.06. Furthermore, the fund has a R-squared of 92.38 and a Sharpe Ratio of 0.81.

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a R-squared of 44.4 with a Treynor Ratio of 11.9 and a Sharpe Ratio of 0.62. Its Mean Return is 0.89 while VNQ’s Alpha is 2.47. Furthermore, the fund has a Beta of 0.76 and a Standard Deviation of 16.13.

IWD’s Mean Return is 0.14 points higher than that of VNQ and its R-squared is 47.98 points higher. With a Standard Deviation of 14.35, IWD is slightly less volatile than VNQ. The Alpha and Beta of IWD are 5.70 points lower and 0.26 points higher than VNQ’s Alpha and Beta.

BTW: Uncorrelated crypto assets such as Bitcoin can serve as a hedge and mitigate risk. I've allocated around 5% of my portfolio to crypto assets through Coinbase - the simplest and cheapest broker I've found! Click here to read more (link to Coinbase).

Performance

Annual Returns

IWD vs. VNQ - Annual Returns

Year IWD VNQ
2020 2.67% -4.72%
2019 26.34% 28.91%
2018 -8.4% -5.95%
2017 13.47% 4.95%
2016 17.09% 8.53%
2015 -3.95% 2.37%
2014 13.21% 30.29%
2013 32.18% 2.42%
2012 17.28% 17.67%
2011 0.21% 8.62%
2010 15.3% 28.44%

IWD had its best year in 2013 with an annual return of 32.18%. IWD’s worst year over the past decade yielded -8.4% and occurred in 2018. In most years the iShares Russell 1000 Value ETF provided moderate returns such as in 2014, 2017, and 2010 where annual returns amounted to 13.21%, 13.47%, and 15.3% respectively.

The year 2014 was the strongest year for VNQ, returning 30.29% on an annual basis. The poorest year for VNQ in the last ten years was 2018, with a yield of -5.95%. Most years the Vanguard Real Estate Index Fund ETF Shares has given investors modest returns, such as in 2017, 2016, and 2011, when gains were 4.95%, 8.53%, and 8.62% respectively.

Portfolio Growth

IWD vs. VNQ - Portfolio Growth

Fund Initial Balance Final Balance CAGR
IWD $10,000 $30,746 11.40%
VNQ $10,000 $29,506 11.05%

A $10,000 investment in IWD would have resulted in a final balance of $30,746. This is a profit of $20,746 over 11 years and amounts to a compound annual growth rate (CAGR) of 11.40%.

With a $10,000 investment in VNQ, the end total would have been $29,506. This equates to a $19,506 profit over 11 years and a compound annual growth rate (CAGR) of 11.05%.

IWD’s CAGR is 0.35 percentage points higher than that of VNQ and as a result, would have yielded $1,240 more on a $10,000 investment. Thus, IWD outperformed VNQ by 0.35% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Coinbase. I've started allocating a small amount of assets to the growing crypto space and Coinbase has just been a breeze to use. Once you register, make sure to also open an Coinbase Pro account to buy crypto at the lowest fees on the market (just 0.1%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply