The Vanguard Small-Cap Index Fund ETF Shares (VB) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. VB is a Vanguard Small Blend fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between VB and VMBS? And which fund is better?
VB and VMBS have the same expense ratio: 0.05%. VB also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, VB has provided higher returns than VMBS over the past ten years.
In this article, we’ll compare VB vs. VMBS. We’ll look at industry exposure and holdings, as well as at their annual returns and risk metrics. Moreover, I’ll also discuss VB’s and VMBS’s portfolio growth, performance, and fund composition and examine how these affect their overall returns.
Summary
| VB | VMBS | |
| Name | Vanguard Small-Cap Index Fund ETF Shares | Vanguard Mortgage-Backed Securities Index Fund ETF Shares |
| Category | Small Blend | Intermediate Government |
| Issuer | Vanguard | Vanguard |
| AUM | 137.72B | 16.61B |
| Avg. Return | 14.25% | 2.89% |
| Div. Yield | 1.14% | 1.23% |
| Expense Ratio | 0.05% | 0.05% |
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 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%.
VB’s dividend yield is 0.09% lower than that of VMBS (1.14% vs. 1.23%). Also, VB yielded on average 11.36% more per year over the past decade (14.25% vs. 2.89%). VB and VMBS have the same expense ratio: 0.05%.
Fund Composition
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%.
| 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
| VB | VMBS | |
| Mean Return | 1.15 | 0.21 |
| R-squared | 85.03 | 65.78 |
| Std. Deviation | 17.82 | 2.02 |
| Alpha | -4.02 | 0.37 |
| Beta | 1.21 | 0.54 |
| Sharpe Ratio | 0.74 | 0.94 |
| Treynor Ratio | 10.15 | 3.47 |
The Vanguard Small-Cap Index Fund ETF Shares (VB) has a Treynor Ratio of 10.15 with a R-squared of 85.03 and a Sharpe Ratio of 0.74. Its Standard Deviation is 17.82 while VB’s Beta is 1.21. Furthermore, the fund has a Alpha of -4.02 and a Mean Return of 1.15.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Standard Deviation of 2.02 with a Alpha of 0.37 and a Mean Return of 0.21. Its Beta is 0.54 while VMBS’s Sharpe Ratio is 0.94. Furthermore, the fund has a R-squared of 65.78 and a Treynor Ratio of 3.47.
VB’s Mean Return is 0.94 points higher than that of VMBS and its R-squared is 19.25 points higher. With a Standard Deviation of 17.82, VB is slightly more volatile than VMBS. The Alpha and Beta of VB are 4.39 points lower and 0.67 points higher than VMBS’s Alpha and Beta.
Performance
Annual Returns
| Year | VB | VMBS |
| 2020 | 19.08% | 3.77% |
| 2019 | 27.37% | 6.17% |
| 2018 | -9.3% | 0.87% |
| 2017 | 16.24% | 2.37% |
| 2016 | 18.31% | 1.43% |
| 2015 | -3.65% | 1.43% |
| 2014 | 7.51% | 5.81% |
| 2013 | 37.8% | -1.28% |
| 2012 | 18.22% | 2.47% |
| 2011 | -2.68% | 5.89% |
| 2010 | 27.89% | 5.24% |
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 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
| Fund | Initial Balance | Final Balance | CAGR |
| VB | $10,000 | $31,069 | 14.25% |
| VMBS | $10,000 | $13,265 | 2.89% |
A $10,000 investment in VB would have resulted in a final balance of $31,069. This is a profit of $21,069 over 10 years and amounts to a compound annual growth rate (CAGR) of 14.25%.
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%.
VB’s CAGR is 11.36 percentage points higher than that of VMBS and as a result, would have yielded $17,804 more on a $10,000 investment. Thus, VB outperformed VMBS by 11.36% annually.
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