The SPDR S&P 500 ETF Trust (SPY) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. SPY is a SPDR State Street Global Advisors Large Blend fund and VMBS is a Vanguard Intermediate Government fund.
So, what’s the difference between SPY and VMBS? And which fund is better?

The expense ratio of SPY is 0.04 percentage points higher than VMBS’s (0.09% vs. 0.05%). SPY also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, SPY has provided higher returns than VMBS over the past ten years.

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

Summary

 SPYVMBS
NameSPDR S&P 500 ETF TrustVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategoryLarge BlendIntermediate Government
IssuerSPDR State Street Global AdvisorsVanguard
AUM374.03B16.61B
Avg. Return14.71%2.48%
Div. Yield1.3%1.23%
Expense Ratio0.09%0.05%

The SPDR S&P 500 ETF Trust (SPY) is a Large Blend fund that is issued by SPDR State Street Global Advisors. It currently has 374.03B total assets under management and has yielded an average annual return of 14.71% over the past 10 years. The fund has a dividend yield of 1.3% with an expense ratio of 0.09%.

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 2.48% over the past 10 years.
The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.

SPY’s dividend yield is 0.07% higher than that of VMBS (1.3% vs. 1.23%).
Also, SPY yielded on average 12.23% more per year over the past decade (14.71% vs. 2.48%).
The expense ratio of SPY is 0.04 percentage points higher than VMBS’s (0.09% vs. 0.05%).

Fund Composition

Holdings

SPY - Holdings
SPY HoldingsWeight
Apple Inc5.9%
Microsoft Corp5.6%
Amazon.com Inc4.05%
Facebook Inc A2.29%
Alphabet Inc A2.02%
Alphabet Inc Class C1.96%
Berkshire Hathaway Inc Class B1.45%
Tesla Inc1.44%
NVIDIA Corp1.37%
JPMorgan Chase & Co1.29%

SPY’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, and Alphabet Inc A at 5.9%, 5.6%, 4.05%, 2.29%, and 2.02%.

Alphabet Inc Class C (1.96%), Berkshire Hathaway Inc Class B (1.45%), and Tesla Inc (1.44%) have a slightly smaller but still significant weight. NVIDIA Corp and JPMorgan Chase & Co are also represented in the SPY’s holdings at 1.37% and 1.29%.

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.

Risk Analysis

 SPYVMBS
Mean Return1.230.21
R-squared10065.78
Std. Deviation13.562.02
Alpha-0.090.37
Beta10.54
Sharpe Ratio1.040.94
Treynor Ratio14.123.47

The SPDR S&P 500 ETF Trust (SPY) has a Standard Deviation of 13.56 with a Alpha of -0.09 and a Treynor Ratio of 14.12. Its Sharpe Ratio is 1.04 while SPY’s Mean Return is 1.23. Furthermore, the fund has a Beta of 1 and a R-squared of 100.

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

SPY’s Mean Return is 1.02 points higher than that of VMBS and its R-squared is 34.22 points higher.
With a Standard Deviation of 13.56, SPY is slightly more volatile than VMBS.
The Alpha and Beta of SPY are 0.46 points lower and 0.46 points higher than VMBS’s Alpha and Beta.

Performance

Annual Returns

SPY vs. VMBS - Annual Returns
YearSPYVMBS
202018.25%3.77%
201931.29%6.17%
2018-4.45%0.87%
201721.69%2.37%
201611.8%1.43%
20151.34%1.43%
201413.53%5.81%
201332.21%-1.28%
201215.84%2.47%
20112.06%5.89%
201014.93%5.24%

SPY had its best year in 2013 with an annual return of 32.21%. SPY’s worst year over the past decade yielded -4.45% and occurred in 2018. In most years the SPDR S&P 500 ETF Trust provided moderate returns such as in 2014, 2010, and 2012 where annual returns amounted to 13.53%, 14.93%, and 15.84% 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

SPY vs. VMBS - Portfolio Growth
FundInitial BalanceFinal BalanceCAGR
SPY$10,000$41,71214.41%
VMBS$10,000$13,9603.11%

A $10,000 investment in SPY would have resulted in a final balance of $41,712.
This is a profit of $31,712 over 10 years and amounts to a compound annual growth rate (CAGR) of 14.71%.

With a $10,000 investment in VMBS, the end total would have been $13,960.
This equates to a $3,960 profit over ten years and a compound annual growth rate (CAGR) of 2.48%.

SPY’s CAGR is 11.30 percentage points higher than that of VMBS and as a result, would have yielded $27,752 more on a $10,000 investment.
Thus, SPY outperformed VMBS by 11.30%.

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