The iShares Russell 2000 ETF (IWM) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. IWM is a iShares Small Blend fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between IWM and VMBS? And which fund is better?
The expense ratio of IWM is 0.14 percentage points higher than VMBS’s (0.19% vs. 0.05%). IWM also has a high exposure to the healthcare sector while VMBS is mostly comprised of AAA bonds. Overall, IWM has provided higher returns than VMBS over the past ten years.
In this article, we’ll compare IWM vs. VMBS. We’ll look at annual returns and risk metrics, as well as at their performance and holdings. Moreover, I’ll also discuss IWM’s and VMBS’s fund composition, portfolio growth, and industry exposure and examine how these affect their overall returns.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
Summary
| IWM | VMBS | |
| Name | iShares Russell 2000 ETF | Vanguard Mortgage-Backed Securities Index Fund ETF Shares |
| Category | Small Blend | Intermediate Government |
| Issuer | iShares | Vanguard |
| AUM | 66.48B | 16.61B |
| Avg. Return | 13.52% | 2.89% |
| Div. Yield | 0.86% | 1.23% |
| Expense Ratio | 0.19% | 0.05% |
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 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%.
IWM’s dividend yield is 0.37% lower than that of VMBS (0.86% vs. 1.23%). Also, IWM yielded on average 10.63% more per year over the past decade (13.52% vs. 2.89%). The expense ratio of IWM is 0.14 percentage points higher than VMBS’s (0.19% vs. 0.05%).
FYI: The best way I've found to invest is through M1 Finance. It's free and you even get an instant line of credit and 100$! Have a look here (link to M1 Finance).
Fund Composition
Holdings
| IWM Holdings | Weight |
| AMC Entertainment Holdings Inc Class A | 0.52% |
| Intellia Therapeutics Inc | 0.33% |
| Crocs Inc | 0.3% |
| BlackRock Cash Funds Treasury SL Agency | 0.29% |
| Tenet Healthcare Corp | 0.26% |
| Lattice Semiconductor Corp | 0.26% |
| Tetra Tech Inc | 0.25% |
| II-VI Inc | 0.25% |
| EastGroup Properties Inc | 0.24% |
| Arrowhead Pharmaceuticals Inc | 0.24% |
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%.
| VMBS Bond Sectors | Weight |
| AAA | 100.01% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
| 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.
Risk Analysis
| IWM | VMBS | |
| Mean Return | 1.12 | 0.21 |
| R-squared | 77.73 | 65.78 |
| Std. Deviation | 18.87 | 2.02 |
| Alpha | -5.12 | 0.37 |
| Beta | 1.23 | 0.54 |
| Sharpe Ratio | 0.68 | 0.94 |
| Treynor Ratio | 9.56 | 3.47 |
The iShares Russell 2000 ETF (IWM) has a R-squared of 77.73 with a Mean Return of 1.12 and a Alpha of -5.12. Its Beta is 1.23 while IWM’s Treynor Ratio is 9.56. Furthermore, the fund has a Standard Deviation of 18.87 and a Sharpe Ratio of 0.68.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Beta of 0.54 with a Alpha of 0.37 and a Sharpe Ratio of 0.94. Its Mean Return is 0.21 while VMBS’s Treynor Ratio is 3.47. Furthermore, the fund has a R-squared of 65.78 and a Standard Deviation of 2.02.
IWM’s Mean Return is 0.91 points higher than that of VMBS and its R-squared is 11.95 points higher. With a Standard Deviation of 18.87, IWM is slightly more volatile than VMBS. The Alpha and Beta of IWM are 5.49 points lower and 0.69 points higher than VMBS’s Alpha and Beta.
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).
Performance
Annual Returns
| Year | IWM | VMBS |
| 2020 | 19.89% | 3.77% |
| 2019 | 25.42% | 6.17% |
| 2018 | -11.02% | 0.87% |
| 2017 | 14.66% | 2.37% |
| 2016 | 21.36% | 1.43% |
| 2015 | -4.33% | 1.43% |
| 2014 | 4.94% | 5.81% |
| 2013 | 38.85% | -1.28% |
| 2012 | 16.39% | 2.47% |
| 2011 | -4.19% | 5.89% |
| 2010 | 26.76% | 5.24% |
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 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
| Fund | Initial Balance | Final Balance | CAGR |
| IWM | $10,000 | $28,941 | 13.52% |
| VMBS | $10,000 | $13,265 | 2.89% |
A $10,000 investment in IWM would have resulted in a final balance of $28,941. This is a profit of $18,941 over 10 years and amounts to a compound annual growth rate (CAGR) of 13.52%.
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%.
IWM’s CAGR is 10.63 percentage points higher than that of VMBS and as a result, would have yielded $15,676 more on a $10,000 investment. Thus, IWM outperformed VMBS by 10.63% 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)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) 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!
3) 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!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.
I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
