QQQ vs. VMBS: What’s The Difference?

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

The expense ratio of QQQ is 0.15 percentage points higher than VMBS’s (0.2% vs. 0.05%). QQQ also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, QQQ has provided higher returns than VMBS over the past ten years.

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

Summary

QQQ VMBS
Name Invesco QQQ Trust Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Large Growth Intermediate Government
Issuer Invesco Vanguard
AUM 174.51B 16.61B
Avg. Return 21.27% 2.89%
Div. Yield 0.49% 1.23%
Expense Ratio 0.2% 0.05%

The Invesco QQQ Trust (QQQ) is a Large Growth fund that is issued by Invesco. It currently has 174.51B total assets under management and has yielded an average annual return of 21.27% over the past 10 years. The fund has a dividend yield of 0.49% with an expense ratio of 0.2%.

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%.

QQQ’s dividend yield is 0.74% lower than that of VMBS (0.49% vs. 1.23%). Also, QQQ yielded on average 18.38% more per year over the past decade (21.27% vs. 2.89%). The expense ratio of QQQ is 0.15 percentage points higher than VMBS’s (0.2% vs. 0.05%).

Fund Composition

Holdings

QQQ - Holdings

QQQ Holdings Weight
Apple Inc 11.0%
Microsoft Corp 9.82%
Amazon.com Inc 8.35%
Facebook Inc Class A 4.01%
Facebook Inc A 4.01%
Alphabet Inc Class C 3.9%
Tesla Inc 3.9%
NVIDIA Corp 3.65%
Alphabet Inc Class A 3.53%
Alphabet Inc A 3.53%

QQQ’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, and Facebook Inc A at 11.0%, 9.82%, 8.35%, 4.01%, and 4.01%.

Alphabet Inc Class C (3.9%), Tesla Inc (3.9%), and NVIDIA Corp (3.65%) have a slightly smaller but still significant weight. Alphabet Inc Class A and Alphabet Inc A are also represented in the QQQ’s holdings at 3.53% and 3.53%.

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.

Performance

Annual Returns

QQQ vs. VMBS - Annual Returns

Year QQQ VMBS
2020 48.6% 3.77%
2019 39.12% 6.17%
2018 -0.14% 0.87%
2017 32.7% 2.37%
2016 7.01% 1.43%
2015 9.54% 1.43%
2014 19.12% 5.81%
2013 36.6% -1.28%
2012 18.09% 2.47%
2011 3.44% 5.89%
2010 19.89% 5.24%

QQQ had its best year in 2020 with an annual return of 48.6%. QQQ’s worst year over the past decade yielded -0.14% and occurred in 2018. In most years the Invesco QQQ Trust provided moderate returns such as in 2012, 2014, and 2010 where annual returns amounted to 18.09%, 19.12%, and 19.89% 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

QQQ vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
QQQ $10,000 $63,827 21.27%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in QQQ would have resulted in a final balance of $63,827. This is a profit of $53,827 over 10 years and amounts to a compound annual growth rate (CAGR) of 21.27%.

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%.

QQQ’s CAGR is 18.38 percentage points higher than that of VMBS and as a result, would have yielded $50,562 more on a $10,000 investment. Thus, QQQ outperformed VMBS by 18.38% annually.


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