The Vanguard Small-Cap Index Fund ETF Shares (VB) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. VB is a Vanguard Small Blend fund and QUAL is a iShares Large Blend fund. So, what’s the difference between VB and QUAL? And which fund is better?
The expense ratio of VB is 0.10 percentage points lower than QUAL’s (0.05% vs. 0.15%). VB also has a lower exposure to the technology sector and a higher standard deviation. Overall, VB has provided higher returns than QUAL over the past ten years.
In this article, we’ll compare VB vs. QUAL. We’ll look at holdings and annual returns, as well as at their portfolio growth and performance. Moreover, I’ll also discuss VB’s and QUAL’s industry exposure, risk metrics, and fund composition and examine how these affect their overall returns.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
Summary
| VB | QUAL | |
| Name | Vanguard Small-Cap Index Fund ETF Shares | iShares MSCI USA Quality Factor ETF |
| Category | Small Blend | Large Blend |
| Issuer | Vanguard | iShares |
| AUM | 137.72B | 23.93B |
| Avg. Return | 14.25% | 13.42% |
| Div. Yield | 1.14% | 1.29% |
| Expense Ratio | 0.05% | 0.15% |
The Vanguard Small-Cap Index Fund ETF Shares (VB) is a Small Blend fund that is issued by Vanguard. It currently has 137.72B total assets under management and has yielded an average annual return of 14.25% over the past 10 years. The fund has a dividend yield of 1.14% with an expense ratio of 0.05%.
The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.
VB’s dividend yield is 0.15% lower than that of QUAL (1.14% vs. 1.29%). Also, VB yielded on average 0.83% more per year over the past decade (14.25% vs. 13.42%). The expense ratio of VB is 0.10 percentage points lower than QUAL’s (0.05% vs. 0.15%).
FYI: The best way I've found to invest is through M1 Finance. It's free and you even get an instant line of credit and 100$! Have a look here (link to M1 Finance).
Fund Composition
Industry Exposure
| VB | QUAL | |
| Technology | 16.85% | 22.52% |
| Industrials | 16.11% | 9.22% |
| Energy | 3.67% | 2.24% |
| Communication Services | 2.4% | 11.44% |
| Utilities | 2.19% | 2.41% |
| Healthcare | 14.34% | 13.22% |
| Consumer Defensive | 4.14% | 8.57% |
| Real Estate | 9.56% | 2.72% |
| Financial Services | 13.06% | 15.87% |
| Consumer Cyclical | 13.03% | 9.43% |
| Basic Materials | 4.63% | 2.35% |
The Vanguard Small-Cap Index Fund ETF Shares (VB) has the most exposure to the Technology sector at 16.85%. This is followed by Industrials and Healthcare at 16.11% and 14.34% respectively. Communication Services (2.4%), Energy (3.67%), and Consumer Defensive (4.14%) only make up 10.21% of the fund’s total assets.
VB’s mid-section with moderate exposure is comprised of Basic Materials, Real Estate, Consumer Cyclical, Financial Services, and Healthcare stocks at 4.63%, 9.56%, 13.03%, 13.06%, and 14.34%.
The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.
QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.
VB is 5.67% less exposed to the Technology sector than QUAL (16.85% vs 22.52%). VB’s exposure to Industrials and Healthcare stocks is 6.89% higher and 1.12% higher respectively (16.11% vs. 9.22% and 14.34% vs. 13.22%). In total, Communication Services, Energy, and Consumer Defensive also make up 12.04% less of the fund’s holdings compared to QUAL (10.21% vs. 22.25%).
Holdings
| VB Holdings | Weight |
| Charles River Laboratories International Inc | 0.34% |
| Pool Corp | 0.32% |
| Bio-Techne Corp | 0.32% |
| Avantor Inc | 0.32% |
| PerkinElmer Inc | 0.31% |
| Diamondback Energy Inc | 0.31% |
| VICI Properties Inc Ordinary Shares | 0.3% |
| IDEX Corp | 0.3% |
| Entegris Inc | 0.3% |
| Novavax Inc | 0.29% |
VB’s Top Holdings are Charles River Laboratories International Inc, Pool Corp, Bio-Techne Corp, Avantor Inc, and PerkinElmer Inc at 0.34%, 0.32%, 0.32%, 0.32%, and 0.31%.
Diamondback Energy Inc (0.31%), VICI Properties Inc Ordinary Shares (0.3%), and IDEX Corp (0.3%) have a slightly smaller but still significant weight. Entegris Inc and Novavax Inc are also represented in the VB’s holdings at 0.3% and 0.29%.
| QUAL Holdings | Weight |
| Facebook Inc Class A | 4.77% |
| Nike Inc Class B | 4.05% |
| Microsoft Corp | 3.54% |
| Apple Inc | 3.52% |
| Johnson & Johnson | 2.99% |
| BlackRock Inc | 2.87% |
| Target Corp | 2.8% |
| Mastercard Inc Class A | 2.72% |
| NVIDIA Corp | 2.71% |
| Alphabet Inc Class A | 2.49% |
QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.
BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.
Risk Analysis
| VB | QUAL | |
| Mean Return | 1.15 | 0 |
| R-squared | 85.03 | 0 |
| Std. Deviation | 17.82 | 0 |
| Alpha | -4.02 | 0 |
| Beta | 1.21 | 0 |
| Sharpe Ratio | 0.74 | 0 |
| Treynor Ratio | 10.15 | 0 |
The Vanguard Small-Cap Index Fund ETF Shares (VB) has a Treynor Ratio of 10.15 with a Sharpe Ratio of 0.74 and a Alpha of -4.02. Its Standard Deviation is 17.82 while VB’s R-squared is 85.03. Furthermore, the fund has a Beta of 1.21 and a Mean Return of 1.15.
The iShares MSCI USA Quality Factor ETF (QUAL) has a R-squared of 0 with a Mean Return of 0 and a Alpha of 0. Its Beta is 0 while QUAL’s Sharpe Ratio is 0. Furthermore, the fund has a Standard Deviation of 0 and a Treynor Ratio of 0.
VB’s Mean Return is 1.15 points higher than that of QUAL and its R-squared is 85.03 points higher. With a Standard Deviation of 17.82, VB is slightly more volatile than QUAL. The Alpha and Beta of VB are 4.02 points lower and 1.21 points higher than QUAL’s Alpha and Beta.
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).
Performance
Annual Returns
| Year | VB | QUAL |
| 2020 | 19.08% | 16.96% |
| 2019 | 27.37% | 34.14% |
| 2018 | -9.3% | -5.77% |
| 2017 | 16.24% | 22.26% |
| 2016 | 18.31% | 9.18% |
| 2015 | -3.65% | 5.56% |
| 2014 | 7.51% | 11.62% |
| 2013 | 37.8% | 0.0% |
| 2012 | 18.22% | 0.0% |
| 2011 | -2.68% | 0.0% |
| 2010 | 27.89% | 0.0% |
VB had its best year in 2013 with an annual return of 37.8%. VB’s worst year over the past decade yielded -9.3% and occurred in 2018. In most years the Vanguard Small-Cap Index Fund ETF Shares provided moderate returns such as in 2017, 2012, and 2016 where annual returns amounted to 16.24%, 18.22%, and 18.31% respectively.
The year 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VB | $10,000 | $19,597 | 14.25% |
| QUAL | $10,000 | $23,251 | 13.42% |
A $10,000 investment in VB would have resulted in a final balance of $19,597. This is a profit of $9,597 over 7 years and amounts to a compound annual growth rate (CAGR) of 14.25%.
With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.
VB’s CAGR is 0.83 percentage points higher than that of QUAL and as a result, would have yielded $3,654 less on a $10,000 investment. Thus, VB outperformed QUAL by 0.83% 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)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) 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!
3) 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!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.
I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
