The iShares MSCI USA Min Vol Factor ETF (USMV) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. USMV is a iShares Large Blend fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between USMV and VMBS? And which fund is better?
The expense ratio of USMV is 0.10 percentage points higher than VMBS’s (0.15% vs. 0.05%). USMV also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, USMV has provided higher returns than VMBS over the past 8 years.
In this article, we’ll compare USMV vs. VMBS. We’ll look at annual returns and fund composition, as well as at their holdings and industry exposure. Moreover, I’ll also discuss USMV’s and VMBS’s risk metrics, performance, and portfolio growth and examine how these affect their overall returns.
|Name||iShares MSCI USA Min Vol Factor ETF||Vanguard Mortgage-Backed Securities Index Fund ETF Shares|
|Category||Large Blend||Intermediate Government|
The iShares MSCI USA Min Vol Factor ETF (USMV) is a Large Blend fund that is issued by iShares. It currently has 27.6B total assets under management and has yielded an average annual return of 13.89% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.
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%.
USMV’s dividend yield is 0.27% higher than that of VMBS (1.5% vs. 1.23%). Also, USMV yielded on average 11.00% more per year over the past decade (13.89% vs. 2.89%). The expense ratio of USMV is 0.10 percentage points higher than VMBS’s (0.15% vs. 0.05%).
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|Eli Lilly and Co||1.64%|
|T-Mobile US Inc||1.51%|
|Accenture PLC Class A||1.51%|
|Visa Inc Class A||1.49%|
|Waste Management Inc||1.45%|
|The Kroger Co||1.44%|
|Johnson & Johnson||1.42%|
|Gilead Sciences Inc||1.42%|
USMV’s Top Holdings are Eli Lilly and Co, Microsoft Corp, T-Mobile US Inc, Accenture PLC Class A, and Visa Inc Class A at 1.64%, 1.62%, 1.51%, 1.51%, and 1.49%.
Waste Management Inc (1.45%), Adobe Inc (1.45%), and The Kroger Co (1.44%) have a slightly smaller but still significant weight. Johnson & Johnson and Gilead Sciences Inc are also represented in the USMV’s holdings at 1.42% and 1.42%.
|VMBS Bond Sectors||Weight|
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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The iShares MSCI USA Min Vol Factor ETF (USMV) has a Beta of 0 with a Sharpe Ratio of 0 and a Mean Return of 0. Its R-squared is 0 while USMV’s Alpha is 0. Furthermore, the fund has a Treynor Ratio of 0 and a Standard Deviation of 0.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Beta of 0.54 with a Sharpe Ratio of 0.94 and a Standard Deviation of 2.02. Its R-squared is 65.78 while VMBS’s Treynor Ratio is 3.47. Furthermore, the fund has a Mean Return of 0.21 and a Alpha of 0.37.
USMV’s Mean Return is 0.21 points lower than that of VMBS and its R-squared is 65.78 points lower. With a Standard Deviation of 0, USMV is slightly less volatile than VMBS. The Alpha and Beta of USMV are 0.37 points lower and 0.54 points lower than VMBS’s Alpha and Beta.
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USMV had its best year in 2019 with an annual return of 27.77%. USMV’s worst year over the past decade yielded 0.0% and occurred in 2011. In most years the iShares MSCI USA Min Vol Factor ETF provided moderate returns such as in 2020, 2016, and 2012 where annual returns amounted to 5.6%, 10.5%, and 11.04% 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.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in USMV would have resulted in a final balance of $27,607. This is a profit of $17,607 over 8 years and amounts to a compound annual growth rate (CAGR) of 13.89%.
With a $10,000 investment in VMBS, the end total would have been $12,225. This equates to a $2,225 profit over 8 years and a compound annual growth rate (CAGR) of 2.89%.
USMV’s CAGR is 11.00 percentage points higher than that of VMBS and as a result, would have yielded $15,382 more on a $10,000 investment. Thus, USMV outperformed VMBS by 11.00% annually.
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