The iShares Russell 2000 ETF (IWM) and the Vanguard Real Estate Index Fund ETF Shares (VNQ) are both among the Top 100 ETFs. IWM is a iShares Small Blend fund and VNQ is a Vanguard Real Estate fund. So, what’s the difference between IWM and VNQ? And which fund is better?
The expense ratio of IWM is 0.07 percentage points higher than VNQ’s (0.19% vs. 0.12%). IWM also has a higher exposure to the healthcare sector and a higher standard deviation. Overall, IWM has provided higher returns than VNQ over the past ten years.
In this article, we’ll compare IWM vs. VNQ. We’ll look at industry exposure and portfolio growth, as well as at their performance and fund composition. Moreover, I’ll also discuss IWM’s and VNQ’s risk metrics, annual returns, and holdings and examine how these affect their overall returns.
Summary
| IWM | VNQ | |
| Name | iShares Russell 2000 ETF | Vanguard Real Estate Index Fund ETF Shares |
| Category | Small Blend | Real Estate |
| Issuer | iShares | Vanguard |
| AUM | 66.48B | 77.34B |
| Avg. Return | 13.52% | 11.05% |
| Div. Yield | 0.86% | 2.34% |
| Expense Ratio | 0.19% | 0.12% |
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 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%.
IWM’s dividend yield is 1.48% lower than that of VNQ (0.86% vs. 2.34%). Also, IWM yielded on average 2.47% more per year over the past decade (13.52% vs. 11.05%). The expense ratio of IWM is 0.07 percentage points higher than VNQ’s (0.19% vs. 0.12%).
Fund Composition
Industry Exposure
| IWM | VNQ | |
| Technology | 14.21% | 0.0% |
| Industrials | 14.78% | 0.0% |
| Energy | 3.74% | 0.0% |
| Communication Services | 3.79% | 0.0% |
| Utilities | 2.44% | 0.0% |
| Healthcare | 20.3% | 0.0% |
| Consumer Defensive | 3.65% | 0.0% |
| Real Estate | 8.59% | 100.0% |
| Financial Services | 13.76% | 0.0% |
| Consumer Cyclical | 10.99% | 0.0% |
| Basic Materials | 3.74% | 0.0% |
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 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%.
IWM is 20.30% more exposed to the Healthcare sector than VNQ (20.3% vs 0.0%). IWM’s exposure to Industrials and Technology stocks is 14.78% higher and 14.21% higher respectively (14.78% vs. 0.0% and 14.21% vs. 0.0%). In total, Consumer Defensive, Basic Materials, and Energy also make up 11.13% more of the fund’s holdings compared to VNQ (11.13% vs. 0.00%).
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%.
| 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%.
Risk Analysis
| IWM | VNQ | |
| Mean Return | 1.12 | 0.89 |
| R-squared | 77.73 | 44.4 |
| Std. Deviation | 18.87 | 16.13 |
| Alpha | -5.12 | 2.47 |
| Beta | 1.23 | 0.76 |
| Sharpe Ratio | 0.68 | 0.62 |
| Treynor Ratio | 9.56 | 11.9 |
The iShares Russell 2000 ETF (IWM) has a Alpha of -5.12 with a Treynor Ratio of 9.56 and a Standard Deviation of 18.87. Its Mean Return is 1.12 while IWM’s R-squared is 77.73. Furthermore, the fund has a Sharpe Ratio of 0.68 and a Beta of 1.23.
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a R-squared of 44.4 with a Alpha of 2.47 and a Treynor Ratio of 11.9. Its Sharpe Ratio is 0.62 while VNQ’s Mean Return is 0.89. Furthermore, the fund has a Standard Deviation of 16.13 and a Beta of 0.76.
IWM’s Mean Return is 0.23 points higher than that of VNQ and its R-squared is 33.33 points higher. With a Standard Deviation of 18.87, IWM is slightly more volatile than VNQ. The Alpha and Beta of IWM are 7.59 points lower and 0.47 points higher than VNQ’s Alpha and Beta.
Performance
Annual Returns
| Year | IWM | VNQ |
| 2020 | 19.89% | -4.72% |
| 2019 | 25.42% | 28.91% |
| 2018 | -11.02% | -5.95% |
| 2017 | 14.66% | 4.95% |
| 2016 | 21.36% | 8.53% |
| 2015 | -4.33% | 2.37% |
| 2014 | 4.94% | 30.29% |
| 2013 | 38.85% | 2.42% |
| 2012 | 16.39% | 17.67% |
| 2011 | -4.19% | 8.62% |
| 2010 | 26.76% | 28.44% |
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 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
| Fund | Initial Balance | Final Balance | CAGR |
| IWM | $10,000 | $36,686 | 13.52% |
| VNQ | $10,000 | $29,506 | 11.05% |
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 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%.
IWM’s CAGR is 2.47 percentage points higher than that of VNQ and as a result, would have yielded $7,180 more on a $10,000 investment. Thus, IWM outperformed VNQ by 2.47% 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.
