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.

Summary

MBB VMBS
Name iShares MBS ETF Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Intermediate Government Intermediate Government
Issuer iShares Vanguard
AUM 25.69B 16.61B
Avg. Return 3.08% 2.89%
Div. Yield 1.88% 1.23%
Expense Ratio 0.06% 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%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

Fund Composition

Holdings

MBB - Holdings

MBB Bond Sectors Weight
AAA 99.51%
Others 0.49%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

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 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.

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).

Risk Analysis

MBB VMBS
Mean Return 0.2 0.21
R-squared 74.38 65.78
Std. Deviation 2.12 2.02
Alpha 0.14 0.37
Beta 0.6 0.54
Sharpe Ratio 0.87 0.94
Treynor Ratio 3.02 3.47

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.

BTW: Uncorrelated crypto assets such as Bitcoin can serve as a hedge and mitigate risk. I've allocated around 5% of my portfolio to crypto assets through Gemini - the simplest and cheapest broker I've found! Click here to read more (link to Gemini).

Performance

Annual Returns

MBB vs. VMBS - Annual Returns

Year MBB VMBS
2020 4.03% 3.77%
2019 6.27% 6.17%
2018 0.81% 0.87%
2017 2.37% 2.37%
2016 1.28% 1.43%
2015 1.28% 1.43%
2014 6.16% 5.81%
2013 -1.92% -1.28%
2012 2.23% 2.47%
2011 5.88% 5.89%
2010 5.44% 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

Fund Initial Balance Final Balance CAGR
MBB $10,000 $13,189 3.08%
VMBS $10,000 $13,265 2.89%

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.


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) 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!

2) 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!).

3) If you are interested in crypto, check out Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply