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IWN vs. VMBS: What’s The Difference?

The iShares Russell 2000 Value ETF (IWN) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. IWN is a iShares Small Value fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between IWN and VMBS? And which fund is better?

The expense ratio of IWN is 0.19 percentage points higher than VMBS’s (0.24% vs. 0.05%). IWN also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, IWN has provided higher returns than VMBS over the past 10 years.

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

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Summary

IWNVMBS
NameiShares Russell 2000 Value ETFVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategorySmall ValueIntermediate Government
IssueriSharesVanguard
AUM15.48B16.61B
Avg. Return10.96%2.89%
Div. Yield1.26%1.23%
Expense Ratio0.24%0.05%

The iShares Russell 2000 Value ETF (IWN) is a Small Value fund that is issued by iShares. It currently has 15.48B total assets under management and has yielded an average annual return of 10.96% over the past 10 years. The fund has a dividend yield of 1.26% with an expense ratio of 0.24%.

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%.

IWN’s dividend yield is 0.03% higher than that of VMBS (1.26% vs. 1.23%). Also, IWN yielded on average 8.07% more per year over the past decade (10.96% vs. 2.89%). The expense ratio of IWN is 0.19 percentage points higher than VMBS’s (0.24% vs. 0.05%).

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Fund Composition

Holdings

IWN - Holdings

IWN HoldingsWeight
AMC Entertainment Holdings Inc Class A1.06%
Tenet Healthcare Corp0.47%
Stag Industrial Inc0.47%
Ovintiv Inc0.45%
EMCOR Group Inc0.42%
Valley National Bancorp0.37%
Chesapeake Energy Corp Ordinary Shares – New0.37%
Agree Realty Corp0.36%
Macy’s Inc0.35%
Essent Group Ltd0.35%

IWN’s Top Holdings are AMC Entertainment Holdings Inc Class A, Tenet Healthcare Corp, Stag Industrial Inc, Ovintiv Inc, and EMCOR Group Inc at 1.06%, 0.47%, 0.47%, 0.45%, and 0.42%.

Valley National Bancorp (0.37%), Chesapeake Energy Corp Ordinary Shares – New (0.37%), and Agree Realty Corp (0.36%) have a slightly smaller but still significant weight. Macy’s Inc and Essent Group Ltd are also represented in the IWN’s holdings at 0.35% and 0.35%.

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

IWNVMBS
Mean Return1.010.21
R-squared72.6465.78
Std. Deviation19.282.02
Alpha-6.320.37
Beta1.210.54
Sharpe Ratio0.590.94
Treynor Ratio8.33.47

The iShares Russell 2000 Value ETF (IWN) has a Standard Deviation of 19.28 with a Sharpe Ratio of 0.59 and a Mean Return of 1.01. Its Alpha is -6.32 while IWN’s R-squared is 72.64. Furthermore, the fund has a Beta of 1.21 and a Treynor Ratio of 8.3.

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

IWN’s Mean Return is 0.80 points higher than that of VMBS and its R-squared is 6.86 points higher. With a Standard Deviation of 19.28, IWN is slightly more volatile than VMBS. The Alpha and Beta of IWN are 6.69 points lower and 0.67 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

IWN vs. VMBS - Annual Returns

YearIWNVMBS
20204.5%3.77%
201922.17%6.17%
2018-12.94%0.87%
20177.73%2.37%
201631.64%1.43%
2015-7.53%1.43%
20144.13%5.81%
201334.3%-1.28%
201217.92%2.47%
2011-5.64%5.89%
201024.29%5.24%

IWN had its best year in 2013 with an annual return of 34.3%. IWN’s worst year over the past decade yielded -12.94% and occurred in 2018. In most years the iShares Russell 2000 Value ETF provided moderate returns such as in 2020, 2017, and 2012 where annual returns amounted to 4.5%, 7.73%, and 17.92% 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

IWN vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
IWN$10,000$22,68010.96%
VMBS$10,000$13,2652.89%

A $10,000 investment in IWN would have resulted in a final balance of $22,680. This is a profit of $12,680 over 10 years and amounts to a compound annual growth rate (CAGR) of 10.96%.

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%.

IWN’s CAGR is 8.07 percentage points higher than that of VMBS and as a result, would have yielded $9,415 more on a $10,000 investment. Thus, IWN outperformed VMBS by 8.07% annually.


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