VBK vs. IEF: What’s The Difference?

The Vanguard Small-Cap Growth Index Fund ETF Shares (VBK) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. VBK is a Vanguard Small Growth fund and IEF is a iShares Long Government fund. So, what’s the difference between VBK and IEF? And which fund is better?

The expense ratio of VBK is 0.08 percentage points lower than IEF’s (0.07% vs. 0.15%). VBK also has a high exposure to the technology sector while IEF is mostly comprised of AAA bonds. Overall, VBK has provided higher returns than IEF over the past 11 years.

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

Summary

VBK IEF
Name Vanguard Small-Cap Growth Index Fund ETF Shares iShares 7-10 Year Treasury Bond ETF
Category Small Growth Long Government
Issuer Vanguard iShares
AUM 37.89B 13.44B
Avg. Return 16.53% 5.06%
Div. Yield 0.45% 0.84%
Expense Ratio 0.07% 0.15%

The Vanguard Small-Cap Growth Index Fund ETF Shares (VBK) is a Small Growth fund that is issued by Vanguard. It currently has 37.89B total assets under management and has yielded an average annual return of 16.53% over the past 10 years. The fund has a dividend yield of 0.45% with an expense ratio of 0.07%.

The iShares 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

VBK’s dividend yield is 0.39% lower than that of IEF (0.45% vs. 0.84%). Also, VBK yielded on average 11.47% more per year over the past decade (16.53% vs. 5.06%). The expense ratio of VBK is 0.08 percentage points lower than IEF’s (0.07% vs. 0.15%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

Fund Composition

Holdings

VBK - Holdings

VBK Holdings Weight
Charles River Laboratories International Inc 0.78%
Pool Corp 0.73%
Bio-Techne Corp 0.73%
Avantor Inc 0.73%
PerkinElmer Inc 0.72%
Entegris Inc 0.7%
PTC Inc 0.62%
Fair Isaac Corp 0.57%
Bill.com Holdings Inc Ordinary Shares 0.56%
Avalara Inc 0.55%

VBK’s Top Holdings are Charles River Laboratories International Inc, Pool Corp, Bio-Techne Corp, Avantor Inc, and PerkinElmer Inc at 0.78%, 0.73%, 0.73%, 0.73%, and 0.72%.

Entegris Inc (0.7%), PTC Inc (0.62%), and Fair Isaac Corp (0.57%) have a slightly smaller but still significant weight. Bill.com Holdings Inc Ordinary Shares and Avalara Inc are also represented in the VBK’s holdings at 0.56% and 0.55%.

IEF - Holdings

IEF Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

IEF’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

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).

Risk Analysis

VBK IEF
Mean Return 1.22 0.32
R-squared 80.56 77.56
Std. Deviation 17.95 5.42
Alpha -2.81 -1.2
Beta 1.18 1.59
Sharpe Ratio 0.78 0.6
Treynor Ratio 11.18 1.97

The Vanguard Small-Cap Growth Index Fund ETF Shares (VBK) has a Standard Deviation of 17.95 with a Alpha of -2.81 and a Treynor Ratio of 11.18. Its Sharpe Ratio is 0.78 while VBK’s Mean Return is 1.22. Furthermore, the fund has a Beta of 1.18 and a R-squared of 80.56.

The iShares 7-10 Year Treasury Bond ETF (IEF) has a Mean Return of 0.32 with a Beta of 1.59 and a Standard Deviation of 5.42. Its Sharpe Ratio is 0.6 while IEF’s Alpha is -1.2. Furthermore, the fund has a R-squared of 77.56 and a Treynor Ratio of 1.97.

VBK’s Mean Return is 0.90 points higher than that of IEF and its R-squared is 3.00 points higher. With a Standard Deviation of 17.95, VBK is slightly more volatile than IEF. The Alpha and Beta of VBK are 1.61 points lower and 0.41 points lower than IEF’s Alpha and Beta.

BTW: Uncorrelated crypto assets such as Bitcoin can serve as a hedge and mitigate risk. I've allocated around 5% of my portfolio to crypto assets through Coinbase - the simplest and cheapest broker I've found! Click here to read more (link to Coinbase).

Performance

Annual Returns

VBK vs. IEF - Annual Returns

Year VBK IEF
2020 35.29% 9.84%
2019 32.75% 8.38%
2018 -5.68% 0.82%
2017 21.9% 2.47%
2016 10.74% 1.0%
2015 -2.51% 1.55%
2014 4.02% 8.92%
2013 38.18% -6.12%
2012 17.67% 4.06%
2011 -1.43% 15.46%
2010 30.87% 9.29%

VBK had its best year in 2013 with an annual return of 38.18%. VBK’s worst year over the past decade yielded -5.68% and occurred in 2018. In most years the Vanguard Small-Cap Growth Index Fund ETF Shares provided moderate returns such as in 2016, 2012, and 2017 where annual returns amounted to 10.74%, 17.67%, and 21.9% respectively.

The year 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

VBK vs. IEF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VBK $10,000 $48,639 16.53%
IEF $10,000 $16,936 5.06%

A $10,000 investment in VBK would have resulted in a final balance of $48,639. This is a profit of $38,639 over 11 years and amounts to a compound annual growth rate (CAGR) of 16.53%.

With a $10,000 investment in IEF, the end total would have been $16,936. This equates to a $6,936 profit over 11 years and a compound annual growth rate (CAGR) of 5.06%.

VBK’s CAGR is 11.47 percentage points higher than that of IEF and as a result, would have yielded $31,703 more on a $10,000 investment. Thus, VBK outperformed IEF by 11.47% 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) 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!

2) 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!).

3) If you are interested in crypto, check out Coinbase. I've started allocating a small amount of assets to the growing crypto space and Coinbase has just been a breeze to use. Once you register, make sure to also open an Coinbase Pro account to buy crypto at the lowest fees on the market (just 0.1%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply