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IWM vs. VHT: What’s The Difference?

The iShares Russell 2000 ETF (IWM) and the Vanguard Health Care Index Fund ETF Shares (VHT) are both among the Top 100 ETFs. IWM is a iShares Small Blend fund and VHT is a Vanguard Health fund. So, what’s the difference between IWM and VHT? And which fund is better?

The expense ratio of IWM is 0.09 percentage points higher than VHT’s (0.19% vs. 0.1%). IWM also has a lower exposure to the healthcare sector and a higher standard deviation. Overall, IWM has provided lower returns than VHT over the past ten years.

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

Introduction To Mutual Funds
Introduction To Mutual Funds
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Summary

IWMVHT
NameiShares Russell 2000 ETFVanguard Health Care Index Fund ETF Shares
CategorySmall BlendHealth
IssueriSharesVanguard
AUM66.48B17.94B
Avg. Return13.52%16.04%
Div. Yield0.86%1.15%
Expense Ratio0.19%0.1%

The iShares Russell 2000 ETF (IWM) is a Small Blend fund that is issued by iShares. It currently has 66.48B total assets under management and has yielded an average annual return of 13.52% over the past 10 years. The fund has a dividend yield of 0.86% with an expense ratio of 0.19%.

The Vanguard Health Care Index Fund ETF Shares (VHT) is a Health fund that is issued by Vanguard. It currently has 17.94B total assets under management and has yielded an average annual return of 16.04% over the past 10 years. The fund has a dividend yield of 1.15% with an expense ratio of 0.1%.

IWM’s dividend yield is 0.29% lower than that of VHT (0.86% vs. 1.15%). Also, IWM yielded on average 2.52% less per year over the past decade (13.52% vs. 16.04%). The expense ratio of IWM is 0.09 percentage points higher than VHT’s (0.19% vs. 0.1%).

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Fund Composition

Industry Exposure

IWM vs. VHT - Industry Exposure

IWMVHT
Technology14.21%0.05%
Industrials14.78%0.05%
Energy3.74%0.0%
Communication Services3.79%0.0%
Utilities2.44%0.0%
Healthcare20.3%99.57%
Consumer Defensive3.65%0.0%
Real Estate8.59%0.0%
Financial Services13.76%0.02%
Consumer Cyclical10.99%0.0%
Basic Materials3.74%0.31%

The iShares Russell 2000 ETF (IWM) has the most exposure to the Healthcare sector at 20.3%. This is followed by Industrials and Technology at 14.78% and 14.21% respectively. Consumer Defensive (3.65%), Basic Materials (3.74%), and Energy (3.74%) only make up 11.13% of the fund’s total assets.

IWM’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Consumer Cyclical, Financial Services, and Technology stocks at 3.79%, 8.59%, 10.99%, 13.76%, and 14.21%.

The Vanguard Health Care Index Fund ETF Shares (VHT) has the most exposure to the Healthcare sector at 99.57%. This is followed by Basic Materials and Technology at 0.31% and 0.05% respectively. Real Estate (0.0%), Consumer Defensive (0.0%), and Utilities (0.0%) only make up 0.00% of the fund’s total assets.

VHT’s mid-section with moderate exposure is comprised of Communication Services, Energy, Financial Services, Industrials, and Technology stocks at 0.0%, 0.0%, 0.02%, 0.05%, and 0.05%.

IWM is 79.27% less exposed to the Healthcare sector than VHT (20.3% vs 99.57%). IWM’s exposure to Industrials and Technology stocks is 14.73% higher and 14.16% higher respectively (14.78% vs. 0.05% and 14.21% vs. 0.05%). In total, Consumer Defensive, Basic Materials, and Energy also make up 10.82% more of the fund’s holdings compared to VHT (11.13% vs. 0.31%).

Holdings

IWM - Holdings

IWM HoldingsWeight
AMC Entertainment Holdings Inc Class A0.52%
Intellia Therapeutics Inc0.33%
Crocs Inc0.3%
BlackRock Cash Funds Treasury SL Agency0.29%
Tenet Healthcare Corp0.26%
Lattice Semiconductor Corp0.26%
Tetra Tech Inc0.25%
II-VI Inc0.25%
EastGroup Properties Inc0.24%
Arrowhead Pharmaceuticals Inc0.24%

IWM’s Top Holdings are AMC Entertainment Holdings Inc Class A, Intellia Therapeutics Inc, Crocs Inc, BlackRock Cash Funds Treasury SL Agency, and Tenet Healthcare Corp at 0.52%, 0.33%, 0.3%, 0.29%, and 0.26%.

Lattice Semiconductor Corp (0.26%), Tetra Tech Inc (0.25%), and II-VI Inc (0.25%) have a slightly smaller but still significant weight. EastGroup Properties Inc and Arrowhead Pharmaceuticals Inc are also represented in the IWM’s holdings at 0.24% and 0.24%.

VHT - Holdings

VHT HoldingsWeight
Johnson & Johnson7.34%
UnitedHealth Group Inc6.44%
Pfizer Inc3.7%
Abbott Laboratories3.48%
Thermo Fisher Scientific Inc3.37%
AbbVie Inc3.37%
Merck & Co Inc3.33%
Eli Lilly and Co3.17%
Danaher Corp2.91%
Medtronic PLC2.83%

VHT’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and Thermo Fisher Scientific Inc at 7.34%, 6.44%, 3.7%, 3.48%, and 3.37%.

AbbVie Inc (3.37%), Merck & Co Inc (3.33%), and Eli Lilly and Co (3.17%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the VHT’s holdings at 2.91% and 2.83%.

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Risk Analysis

IWMVHT
Mean Return1.121.33
R-squared77.7359.86
Std. Deviation18.8713.58
Alpha-5.127.99
Beta1.230.75
Sharpe Ratio0.681.13
Treynor Ratio9.5620.74

The iShares Russell 2000 ETF (IWM) has a Alpha of -5.12 with a Beta of 1.23 and a Mean Return of 1.12. Its R-squared is 77.73 while IWM’s Standard Deviation is 18.87. Furthermore, the fund has a Sharpe Ratio of 0.68 and a Treynor Ratio of 9.56.

The Vanguard Health Care Index Fund ETF Shares (VHT) has a Mean Return of 1.33 with a Treynor Ratio of 20.74 and a Beta of 0.75. Its Alpha is 7.99 while VHT’s Sharpe Ratio is 1.13. Furthermore, the fund has a R-squared of 59.86 and a Standard Deviation of 13.58.

IWM’s Mean Return is 0.21 points lower than that of VHT and its R-squared is 17.87 points higher. With a Standard Deviation of 18.87, IWM is slightly more volatile than VHT. The Alpha and Beta of IWM are 13.11 points lower and 0.48 points higher than VHT’s Alpha and Beta.

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Performance

Annual Returns

IWM vs. VHT - Annual Returns

YearIWMVHT
202019.89%18.21%
201925.42%21.97%
2018-11.02%5.55%
201714.66%23.34%
201621.36%-3.33%
2015-4.33%7.22%
20144.94%25.38%
201338.85%42.67%
201216.39%19.1%
2011-4.19%10.57%
201026.76%5.75%

IWM had its best year in 2013 with an annual return of 38.85%. IWM’s worst year over the past decade yielded -11.02% and occurred in 2018. In most years the iShares Russell 2000 ETF provided moderate returns such as in 2017, 2012, and 2020 where annual returns amounted to 14.66%, 16.39%, and 19.89% respectively.

The year 2013 was the strongest year for VHT, returning 42.67% on an annual basis. The poorest year for VHT in the last ten years was 2016, with a yield of -3.33%. Most years the Vanguard Health Care Index Fund ETF Shares has given investors modest returns, such as in 2011, 2020, and 2012, when gains were 10.57%, 18.21%, and 19.1% respectively.

Portfolio Growth

IWM vs. VHT - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
IWM$10,000$36,68613.52%
VHT$10,000$48,46416.04%

A $10,000 investment in IWM would have resulted in a final balance of $36,686. This is a profit of $26,686 over 11 years and amounts to a compound annual growth rate (CAGR) of 13.52%.

With a $10,000 investment in VHT, the end total would have been $48,464. This equates to a $38,464 profit over 11 years and a compound annual growth rate (CAGR) of 16.04%.

IWM’s CAGR is 2.52 percentage points lower than that of VHT and as a result, would have yielded $11,778 less on a $10,000 investment. Thus, IWM performed worse than VHT by 2.52% annually.


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