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MBB vs. VMBS: What’s The Difference?

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

The expense ratio of MBB is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%). MBB is mostly comprised of AAA bonds and VMBS has a high exposure to AAA bond. Overall, MBB has provided higher returns than VMBS over the past 10 years.

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

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Summary

MBBVMBS
NameiShares MBS ETFVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategoryIntermediate GovernmentIntermediate Government
IssueriSharesVanguard
AUM25.69B16.61B
Avg. Return3.08%2.89%
Div. Yield1.88%1.23%
Expense Ratio0.06%0.05%

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 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%.

MBB’s dividend yield is 0.65% higher than that of VMBS (1.88% vs. 1.23%). Also, MBB yielded on average 0.18% more per year over the past decade (3.08% vs. 2.89%). The expense ratio of MBB is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%).

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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.

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

MBBVMBS
Mean Return0.20.21
R-squared74.3865.78
Std. Deviation2.122.02
Alpha0.140.37
Beta0.60.54
Sharpe Ratio0.870.94
Treynor Ratio3.023.47

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

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

MBB’s Mean Return is 0.01 points lower than that of VMBS and its R-squared is 8.60 points higher. With a Standard Deviation of 2.12, MBB is slightly more volatile than VMBS. The Alpha and Beta of MBB are 0.23 points lower and 0.06 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

MBB vs. VMBS - Annual Returns

YearMBBVMBS
20204.03%3.77%
20196.27%6.17%
20180.81%0.87%
20172.37%2.37%
20161.28%1.43%
20151.28%1.43%
20146.16%5.81%
2013-1.92%-1.28%
20122.23%2.47%
20115.88%5.89%
20105.44%5.24%

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 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

MBB vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
MBB$10,000$13,1893.08%
VMBS$10,000$13,2652.89%

A $10,000 investment in MBB would have resulted in a final balance of $13,189. This is a profit of $3,189 over 10 years and amounts to a compound annual growth rate (CAGR) of 3.08%.

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%.

MBB’s CAGR is 0.18 percentage points higher than that of VMBS and as a result, would have yielded $76 less on a $10,000 investment. Thus, MBB outperformed VMBS by 0.18% annually.


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