TQQQ vs. VMBS: What’s The Difference?

The ProShares UltraPro QQQ (TQQQ) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. TQQQ is a ProShares Trading–Leveraged Equity fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between TQQQ and VMBS? And which fund is better?

The expense ratio of TQQQ is 0.90 percentage points higher than VMBS’s (0.95% vs. 0.05%). TQQQ also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, TQQQ has provided higher returns than VMBS over the past 10 years.

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

Summary

TQQQ VMBS
Name ProShares UltraPro QQQ Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Trading–Leveraged Equity Intermediate Government
Issuer ProShares Vanguard
AUM 12.41B 16.61B
Avg. Return 61.22% 2.89%
Div. Yield 0.0% 1.23%
Expense Ratio 0.95% 0.05%

The ProShares UltraPro QQQ (TQQQ) is a Trading–Leveraged Equity fund that is issued by ProShares. It currently has 12.41B total assets under management and has yielded an average annual return of 61.22% over the past 10 years. The fund has a dividend yield of 0.0% with an expense ratio of 0.95%.

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%.

TQQQ’s dividend yield is 1.23% lower than that of VMBS (0.0% vs. 1.23%). Also, TQQQ yielded on average 58.33% more per year over the past decade (61.22% vs. 2.89%). The expense ratio of TQQQ is 0.90 percentage points higher than VMBS’s (0.95% vs. 0.05%).

Fund Composition

Holdings

TQQQ - Holdings

TQQQ Holdings Weight
Nasdaq 100 Index Swap Goldman Sachs International 45.11%
Nasdaq 100 Index Swap Societe Generale 44.73%
Nasdaq 100 Index Swap Bnp Paribas 38.05%
Nasdaq 100 Index Swap Bank Of America Na 31.53%
Nasdaq 100 Index Swap Citibank Na 31.49%
Nasdaq 100 Index Swap Jp Morgan Securities 26.2%
Apple Inc 7.49%
Microsoft Corp 6.69%
Nasdaq 100 Index Swap Credit Suisse International 5.9%
Amazon.com Inc 5.68%

TQQQ’s Top Holdings are Nasdaq 100 Index Swap Goldman Sachs International, Nasdaq 100 Index Swap Societe Generale, Nasdaq 100 Index Swap Bnp Paribas, Nasdaq 100 Index Swap Bank Of America Na, and Nasdaq 100 Index Swap Citibank Na at 45.11%, 44.73%, 38.05%, 31.53%, and 31.49%.

Nasdaq 100 Index Swap Jp Morgan Securities (26.2%), Apple Inc (7.49%), and Microsoft Corp (6.69%) have a slightly smaller but still significant weight. Nasdaq 100 Index Swap Credit Suisse International and Amazon.com Inc are also represented in the TQQQ’s holdings at 5.9% and 5.68%.

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.

Risk Analysis

TQQQ VMBS
Mean Return 4.65 0.21
R-squared 83.64 65.78
Std. Deviation 50.08 2.02
Alpha 7.29 0.37
Beta 3.37 0.54
Sharpe Ratio 1.1 0.94
Treynor Ratio 15.65 3.47

The ProShares UltraPro QQQ (TQQQ) has a Sharpe Ratio of 1.1 with a Standard Deviation of 50.08 and a R-squared of 83.64. Its Treynor Ratio is 15.65 while TQQQ’s Alpha is 7.29. Furthermore, the fund has a Mean Return of 4.65 and a Beta of 3.37.

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

TQQQ’s Mean Return is 4.44 points higher than that of VMBS and its R-squared is 17.86 points higher. With a Standard Deviation of 50.08, TQQQ is slightly more volatile than VMBS. The Alpha and Beta of TQQQ are 6.92 points higher and 2.83 points higher than VMBS’s Alpha and Beta.

Performance

Annual Returns

TQQQ vs. VMBS - Annual Returns

Year TQQQ VMBS
2020 109.85% 3.77%
2019 133.93% 6.17%
2018 -19.65% 0.87%
2017 118.65% 2.37%
2016 11.04% 1.43%
2015 17.41% 1.43%
2014 56.82% 5.81%
2013 139.98% -1.28%
2012 51.95% 2.47%
2011 -7.77% 5.89%
2010 0.0% 5.24%

TQQQ had its best year in 2013 with an annual return of 139.98%. TQQQ’s worst year over the past decade yielded -19.65% and occurred in 2018. In most years the ProShares UltraPro QQQ provided moderate returns such as in 2015, 2012, and 2014 where annual returns amounted to 17.41%, 51.95%, and 56.82% 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

TQQQ vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TQQQ $10,000 $593,012 61.22%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in TQQQ would have resulted in a final balance of $593,012. This is a profit of $583,012 over 10 years and amounts to a compound annual growth rate (CAGR) of 61.22%.

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%.

TQQQ’s CAGR is 58.33 percentage points higher than that of VMBS and as a result, would have yielded $579,747 more on a $10,000 investment. Thus, TQQQ outperformed VMBS by 58.33% annually.


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