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MBB vs. SHY: What’s The Difference?

The iShares MBS ETF (MBB) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. MBB is a iShares Intermediate Government fund and SHY is a iShares Short Government fund. So, what’s the difference between MBB and SHY? And which fund is better?

The expense ratio of MBB is 0.09 percentage points lower than SHY’s (0.06% vs. 0.15%). MBB is mostly comprised of AAA bonds and SHY has a high exposure to AAA bond. Overall, MBB has provided higher returns than SHY over the past 11 years.

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

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Summary

MBBSHY
NameiShares MBS ETFiShares 1-3 Year Treasury Bond ETF
CategoryIntermediate GovernmentShort Government
IssueriSharesiShares
AUM25.69B19.51B
Avg. Return3.08%1.27%
Div. Yield1.88%0.46%
Expense Ratio0.06%0.15%

The iShares MBS ETF (MBB) is a Intermediate Government fund that is issued by iShares. It currently has 25.69B total assets under management and has yielded an average annual return of 3.08% over the past 10 years. The fund has a dividend yield of 1.88% with an expense ratio of 0.06%.

The iShares 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

MBB’s dividend yield is 1.42% higher than that of SHY (1.88% vs. 0.46%). Also, MBB yielded on average 1.80% more per year over the past decade (3.08% vs. 1.27%). The expense ratio of MBB is 0.09 percentage points lower than SHY’s (0.06% vs. 0.15%).

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Fund Composition

Holdings

MBB - Holdings

MBB Bond SectorsWeight
AAA99.51%
Others0.49%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

MBB’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.51%, 0.49%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

SHY - Holdings

SHY Bond SectorsWeight
AAA99.67%
Others0.33%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

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Risk Analysis

MBBSHY
Mean Return0.20.09
R-squared74.3839.11
Std. Deviation2.120.89
Alpha0.14-0.03
Beta0.60.18
Sharpe Ratio0.870.54
Treynor Ratio3.022.6

The iShares MBS ETF (MBB) has a Standard Deviation of 2.12 with a Beta of 0.6 and a Treynor Ratio of 3.02. Its R-squared is 74.38 while MBB’s Mean Return is 0.2. Furthermore, the fund has a Alpha of 0.14 and a Sharpe Ratio of 0.87.

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Treynor Ratio of 2.6 with a Sharpe Ratio of 0.54 and a R-squared of 39.11. Its Standard Deviation is 0.89 while SHY’s Alpha is -0.03. Furthermore, the fund has a Mean Return of 0.09 and a Beta of 0.18.

MBB’s Mean Return is 0.11 points higher than that of SHY and its R-squared is 35.27 points higher. With a Standard Deviation of 2.12, MBB is slightly more volatile than SHY. The Alpha and Beta of MBB are 0.17 points higher and 0.42 points higher than SHY’s Alpha and Beta.

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Performance

Annual Returns

MBB vs. SHY - Annual Returns

YearMBBSHY
20204.03%3.01%
20196.27%3.42%
20180.81%1.45%
20172.37%0.27%
20161.28%0.75%
20151.28%0.43%
20146.16%0.48%
2013-1.92%0.23%
20122.23%0.31%
20115.88%1.43%
20105.44%2.23%

MBB had its best year in 2019 with an annual return of 6.27%. MBB’s worst year over the past decade yielded -1.92% and occurred in 2013. In most years the iShares MBS ETF provided moderate returns such as in 2012, 2017, and 2020 where annual returns amounted to 2.23%, 2.37%, and 4.03% respectively.

The year 2019 was the strongest year for SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.

Portfolio Growth

MBB vs. SHY - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
MBB$10,000$13,9063.08%
SHY$10,000$11,4861.27%

A $10,000 investment in MBB would have resulted in a final balance of $13,906. This is a profit of $3,906 over 11 years and amounts to a compound annual growth rate (CAGR) of 3.08%.

With a $10,000 investment in SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.

MBB’s CAGR is 1.80 percentage points higher than that of SHY and as a result, would have yielded $2,420 more on a $10,000 investment. Thus, MBB outperformed SHY by 1.80% annually.


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